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

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  • Shu-ki Tsang

    (Hong Kong Baptist University)

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.

Suggested Citation

  • Shu-ki Tsang, 2002. "From "One Country, Two Systems" to Monetary Integration?," Working Papers 152002, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:152002
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    References listed on IDEAS

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    7. von Hagen, Jurgen & Neumann, Manfred J M, 1994. "Real Exchange Rates within and between Currency Areas: How Far Away Is EMU?," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 236-244, May.
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