The Hong Kong Linked Rate Mechanism: Monetary Lessons for Economic Development
Christopher L. Culp
Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise; Swiss Finance Institute; Compass Lexecon
Steve H. Hanke
Johns Hopkins University - Department of Economics
June 1, 1993
Johns Hopkins University Department of Economics Working Paper
A currency board is a monetary institution that issues notes and coins which are fully convertible into a reserve currency at a fixed rate on demand. Reserves are equal to 100 per cent, or slightly more, of a board’s notes and coins. There have been over seventy currency boards and all have maintained convertibility, even during civil wars. Although successful, currency boards fell victim to changing economic fashions, and most were replaced by central banks after World War II. Hong Kong has one of the few remaining currency board systems, although that system remains largely unknown, even to monetary specialists. An analysis of the evolution and working of Hong Kong’s system is presented in this text. Strengths and weaknesses of the current system are discussed, and measures to correct weaknesses are suggested. The desirability of the currency board system for developing countries, particularly those making the transformation from socialism to capitalism, is also examined.
Number of Pages in PDF File: 57
Keywords: Steve Hanke, Christopher Culp, Hong Kong Dollar, Linked Exchange Rate Mechanism, Johns Hopkins Economics
Date posted: January 26, 2013
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