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Analysing External Demand for the Hong Kong-Dollar Currency


  • Frank Leung

    (Research Department, Hong Kong Monetary Authority)

  • Philip Ng

    (Research Department, Hong Kong Monetary Authority)

  • Simon Chan

    (Research Department, Hong Kong Monetary Authority)


This paper estimates that about 50 ¡V 70% of the Hong Kong-dollar currency in circulation (equivalent to about $100 ¡V 140 billion), mostly in the form of high-denomination banknotes, was being circulated outside Hong Kong at the end of 2009. The large external circulation was mainly a result of increased economic integration between Mainland China and Hong Kong, with a thriving gaming industry in Macao providing an extra boost. In the near future, although economic integration will continue to expand external circulation, an appreciation of the renminbi is likely to reduce it. Simulation results from a cash demand model suggest that a gradual and orderly appreciation of the renminbi is not likely to cause large-scale repatriation of Hong Kong-dollar banknotes back to Hong Kong or pose a significant risk to domestic monetary stability. While some observers raise concerns about a potential increase in counterfeiting activity due to large external circulation, we have found that no clear relationship existed between counterfeiting notes confiscated in Hong Kong and external currency demand in recent years.

Suggested Citation

  • Frank Leung & Philip Ng & Simon Chan, 2010. "Analysing External Demand for the Hong Kong-Dollar Currency," Working Papers 1007, Hong Kong Monetary Authority.
  • Handle: RePEc:hkg:wpaper:1007

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    References listed on IDEAS

    1. Kenneth S. Chan, 2001. "Currency Substitution between Hong Kong Dollar and Renminbi in South China," Working Papers 022001, Hong Kong Institute for Monetary Research.
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    Cited by:

    1. Alessandro Calza & Andrea Zaghini, 2016. "Shoe-Leather Costs in the Euro Area and the Foreign Demand for Euro Banknotes," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 231-246, March.
    2. Bartzsch, Nikolaus & Rösl, Gerhard & Seitz, Franz, 2013. "Currency movements within and outside a currency union: The case of Germany and the euro area," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 393-401.
    3. Feige, Edgar L., 2012. "The myth of the “cashless society”: How much of America’s currency is overseas?," MPRA Paper 42169, University Library of Munich, Germany.

    More about this item


    Hong Kong; Currency Demand; Money Demand; Currency Circulation;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers


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