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The Internationalisation of Hong Kong Dollar: An Analytical Framework

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  • Kenneth S. Chan

    (Department of Economics, McMaster University)

Abstract

This paper models the macroeconomic impact from the "internationalisation" of Hong Kong Dollar under the fixed and floating exchange rate regimes. A three-region model, the Centre, the Periphery and the Rest-of-the-World, is constructed. The present paper finds that, under floating exchange rates, foreign circulation of home currency increases the volatility of the home exchange rates. Under a fixed exchange rate, however, other than a more volatile level of reserves, foreign circulation has no macro impact on the home economy. This paper also finds that a broader global demand for home asset narrows the gap between domestic and foreign interest rates, which can subsequently lower the likelihood of self-fulfilling currency crisis.

Suggested Citation

  • Kenneth S. Chan, 2001. "The Internationalisation of Hong Kong Dollar: An Analytical Framework," Working Papers 012001, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:012001
    as

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    References listed on IDEAS

    as
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