The Internationalisation of Hong Kong Dollar: An Analytical Framework
AbstractThis 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.
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Bibliographic InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 012001.
Length: 15 pages
Date of creation: Mar 2001
Date of revision:
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