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From "One Country, Two Systems" to Monetary Integration?

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  • Shu-ki Tsang

    (Hong Kong Baptist University)

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    Abstract

    The Hong Kong dollar has been pegged to the U.S. dollar since 1983. Recently, the rapid economic integration between Mainland China and Hong Kong has raised concern about the continuing optimality of the peg. Officially, the Hong Kong Special Adminstrative Region (HKSAR) is under the framework of "one country, two systems" and "one country, two currencies". Hence monetary integration was never in the pipeline. However, is the existence of separate currencies consistent with the fast changing economic reality? Would a re-peg with the Renminbi, the Chinese currency, or even a monetary union with the Mainland, be possible options, particularly if the Renminbi becomes fully convertible some time in the future? If so, what are the preconditions for the options? What needs to be done to prepare for them? This paper addresses these interesting questions by going through the complicated issues of trade, real versus nominal convergence, risk sharing as well as labour mobility. It emerges that the status quo is optimal in the foreseeable future.

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    Bibliographic Info

    Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 152002.

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    Length: 28 pages
    Date of creation: Sep 2002
    Date of revision:
    Handle: RePEc:hkm:wpaper:152002

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    1. Neumann, Manfred J.M. & von Hagen, Jürgen, 1992. "Real Exchange Rates Within and Between Currency Areas: How Far Away is EMU?," CEPR Discussion Papers 660, C.E.P.R. Discussion Papers.
    2. von Hagen, Jurgen & Hammond, George W, 1998. "Regional Insurance against Asymmetric Shocks: An Empirical Study for the European Community," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(3), pages 331-53, June.
    3. Goohoon Kwon, 1997. "Experiences with Monetary Integration and Lessons for Korean Unification," IMF Working Papers 97/65, International Monetary Fund.
    4. Asdrubali, Pierfederico & Sorensen, Bent E & Yosha, Oved, 1996. "Channels of Interstate Risk Sharing: United States 1963-1990," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1081-1110, November.
    5. Neumeyer, Pablo Andres, 1998. "Currencies and the Allocation of Risk: The Welfare Effects of a Monetary Union," American Economic Review, American Economic Association, vol. 88(1), pages 246-59, March.
    6. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Monetary union without fiscal coordination may discipline policymakers," Discussion Paper 1995-59, Tilburg University, Center for Economic Research.
    7. Asdrubali, Pierfederico & Kim, Soyoung, 2004. "Dynamic risksharing in the United States and Europe," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 809-836, May.
    8. De Grauwe, Paul, 1996. "Monetary union and convergence economics," European Economic Review, Elsevier, vol. 40(3-5), pages 1091-1101, April.
    9. Sylviane GUILLAUMONT JEANNENEY & Ping HUA, 2001. "The Balassa-Samuelson effect and inflation in the Chinese provinces," Working Papers 200106, CERDI.
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