HKD could peg to Yuan

Over the last few months, the Chinese Yuan has picked up its pace of acceleration, to such an extent that it is now rising by an annualized rate of 7%. This has spurred two points of speculation: first, for how long will the Yuan continue to rise at this pace and second, will Hong Kong link its Dollar currency (HKD) to the Yuan? The answer to both questions is ‘probably not.’ The Yuan’s current rise is probably a conciliatory gesture to carping foreigners. With regard to the second question, Hong Kong is probably not likely to peg its currency to the Yuan because currency stability is important to its position as one of the world’s foremost financial hubs. In addition, Hong Kong is not subject to the level of international pressure that plagues its counterpart, so there is no real incentive for it to link its currency to the rising Yuan. The Economist reports:

As Hong Kong and mainland China become more economically and financially integrated, it seems inevitable that the Hong Kong Dollar will eventually be replaced by the Yuan. However, a merger will not make sense until the Yuan becomes fully convertible.

Read More: Yuan for all, all for yuan