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Up, Down, Good, Bad. Understanding the peg.

Earlier this week I noticed this story about how the currency peg is making it more attractive to invest in equities or property. Then another piece yesterday, worrying that the Hong Kong Dollar is falling in value and that this may cause interest rates to rise and slow down the economy.

We need to get this into perspective - these are tiny changes in the value of the Hong Kong Dollar, which hasn't moved more than 1% from US$1 = HK$7.73 for many years.

What has been happening is that HSBC and others have reduced the interest rates they pay to savers almost to zero, but the official base rate hasn't changed. The effect of this is fairly marginal, given that they were previously paying (I think) 0.1% per annum. This is more a confidence thing - people have had long had money in the bank but were nervous about investing in property and equities, and now they feel more confident. The amount of interest paid by banks on money in savings accounts has low in Hong Kong for a long time, and no-one can have kept money there for the return they were getting!

Still, I suppose they have to write something!


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