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The Hong Kong Linked Rate Mechanism: Monetary Lessons for Economic Development

Johns Hopkins University Department of Economics Working Paper

57 Pages Posted: 26 Jan 2013  

Christopher L. Culp

Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise; Swiss Finance Institute; Compass Lexecon; Risk Management Consulting Services, Inc.

Steve H. Hanke

Johns Hopkins University - Department of Economics

Date Written: June 1, 1993

Abstract

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.

Keywords: Steve Hanke, Christopher Culp, Hong Kong Dollar, Linked Exchange Rate Mechanism, Johns Hopkins Economics

Suggested Citation

Culp, Christopher L. and Hanke, Steve H., The Hong Kong Linked Rate Mechanism: Monetary Lessons for Economic Development (June 1, 1993). Johns Hopkins University Department of Economics Working Paper. Available at SSRN: https://ssrn.com/abstract=2207027

Christopher L. Culp

Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise ( email )

3400 N. Charles Street
Baltimore, MD 21218
United States

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Compass Lexecon ( email )

332 South Michigan Avenue
Suite 1300
Chicago, IL 60604
United States

Risk Management Consulting Services, Inc. ( email )

1501 N. State Pkwy., No. 7A
#7A
Chicago, IL Illinois 60610
United States
3125877163 (Phone)

HOME PAGE: http://www.rmcsinc.com

Steve H. Hanke (Contact Author)

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States
410-516-7183 (Phone)
410-516-8996 (Fax)

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