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Hong Kong Won't Review Currency Peg
Hong Kong legislators dropped plans Friday to review the impact of the region's 19-year-old currency peg to the US dollar after reports of the study sent interest rates higher.

"I support the idea that the legislature should be cautious," said Emily Lau, leader of the opposition Frontier Party, who originally proposed the study.

She spoke after the Legislative Council voted unanimously to kill the idea.

Hong Kong money market rates rose after the Chinese-language Apple Daily reported the review may lead to peg's abolition.

The Hong Kong Monetary Authority, the de facto regional central bank, responded that the government has "no plan to change the link," under which there are 7.8 Hong Kong dollars to the US dollar.

"The government of the Hong Kong SAR has clearly stated that it has no plan to change the linked-exchange-rate system. The link has served Hong Kong well over the last 19years and has been an important factor in Hong Kong's economic success," said a statement from the Hong Kong Monetary Authority.

The peg has been blamed for thwarting Hong Kong's recovery by making exports more expensive than those of Asian competitors whose currencies have fallen against the dollar.

The region is suffering from record unemployment, almost four years of deflation and a real-estate market yet to rebound from losing more than half its value in 1997-98period.

"Poor economic conditions have led more and more people to agree that the peg is part of reason for the city's deflation and lack of competitiveness," said Andrew Fung, northeast Asia treasurer of Commonwealth Bank of Australia.

Lau said she was surprised by the fuss kicked up by the proposal.

"Lawmakers are just not familiar with the exchange system of Hong Kong," said Daniel Chan, an economist at Dao Heng Bank, " So I don't think this will have any pressure on the link -though the traders will take opportunities and try their best to do something."

(eastday.com September 21, 2002)

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