US dollar peg stays, says HK’s finance chief

Hong Kong’s finance chief warned that the current Swiss franc crisis is a reminder of why the city must not abandon the peg to the US dollar. The Macau pataca is pegged indirectly to the US dollar via the Hong Kong dollar.
In a blog post, Hong Kong’s Financial Secretary, John Tsang Chun-wah, wrote that the Swiss central bank decision to leave the franc’s peg with the euro was like a “tsunami” and shows an important lesson to authorities.
The Swiss National Bank (SNB) announced that it would scrap a cap on the value of the Swiss franc against the euro, a move that put the currency up more than 40 per cent triggering a financial turmoil in world markets as investors lost one of their safe havens. Swiss exporters are taking a heavy toll from luxury watches companies to tourism.
Mr. Chun-wah said the move undermined “investor confidence” and “credibility” and should be a no-go for Hong Kong’s policymakers. He assured investors that the financial stability of the city is unshakeable because its currency policy was unwavering. “Central banks take a long time to establish credibility. The sharp appreciation of the Swiss franc will weaken the Swiss economy’s overall competitiveness… and may even lead to an economic slowdown and deflation”, he wrote.
Hong Kong’s finance chief also underlined that “we have no plans to change such an effective system”, referring to the peg between the Hong kong and US dollar.
The Swiss franc decision took markets unawares – even the International Monetary Fund (IMF) admitted it was ‘a bit of a surprise’ – and ends a three-year peg to the euro – compared to a 30-year link between Hong Kong and the US. The cap on the euro was created in 2011 to protect the franc from speculators who were pouring money during the sovereign crisis of 2011 into Swiss banks as a safe haven.
L.G.