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Currency Substitution between Hong Kong Dollar and Renminbi in South China

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  • Kenneth S. Chan

    (Department of Economics, McMaster University)

Abstract

This paper estimates the demand for the Hong Kong currency circulating in the Guangdong Province of China and Macau. The amount of Hong Kong Dollar circulating in the Guangdong (Macau) region is reckoned to be 7.4 (3.2) per cent of the total amount issued in Hong Kong. The estimated coefficients in the currency demand equation suggest that the Hong Kong currency in Guangdong is used mainly for transactions. Therefore, in spite of strong evidence of currency substitution of the renminbi with the Hong Kong dollar, its impact on the exchange rate and on the international reserves of Hong Kong during currency crisis should be minimal.

Suggested Citation

  • Kenneth S. Chan, 2001. "Currency Substitution between Hong Kong Dollar and Renminbi in South China," Working Papers 022001, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:022001
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
    2. Brian M. Doyle, 2000. ""Here, dollars, dollars ..."estimating currency demand and worldwide currency substitution," International Finance Discussion Papers 657, Board of Governors of the Federal Reserve System (U.S.).
    3. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of the Augmented Dickey-Fuller Test," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 277-280, July.
    4. Cuddington, John T. & Cuddington, John T., 1983. "Currency substitution, capital mobility and money demand," Journal of International Money and Finance, Elsevier, vol. 2(2), pages 111-133, August.
    5. Kenneth Rogoff, 1998. "Blessing or curse? Foreign and underground demand for euro notes," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 261-303, April.
    6. Zervoyianni, Athina, 1992. "International macroeconomic interdependence, currency substitution, and price stickiness," Journal of Macroeconomics, Elsevier, vol. 14(1), pages 59-86.
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    Cited by:

    1. Frank Leung & Philip Ng & Simon Chan, 2010. "Analysing External Demand for the Hong Kong-Dollar Currency," Working Papers 1007, Hong Kong Monetary Authority.
    2. Wensheng Peng & Joanna Y L Shi, 2003. "Offshore use of currency: Hong Kong’s experience," BIS Papers chapters,in: Bank for International Settlements (ed.), China's capital account liberalisation: international perspective, volume 15, pages 166-177 Bank for International Settlements.
    3. Bank for International Settlements, 2003. "China's capital account liberalisation: international perspective," BIS Papers, Bank for International Settlements, number 15, february.

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