On the Maintenance Costs and Exit Costs of the Peg in Hong Kong

Paul S. L. Yip
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Paul S. L. Yip: Economics Department, School of Humanities and Social Sciences, Nanyang Technological University, Singapore

No 505, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: This paper attempts to pioneer a discussion on the exit and maintenance costs of the Currency Board System (CBS) in Hong Kong, and hopes to invite more debate on the issue. It suggests that the exit costs will depend on the timing of an exit, whether there are supplementary packages to mitigate the exit costs, and the choice of an alternative exchange rate system. In particular, it suggests that the monitoring band system favored by Williamson (2000) could help to reduce the exit costs. In addition, the paper points out that there are ways to reduce both the exit and maintenance costs. It then proposes a reform that could benefit the economy regardless of whether the policy maker eventually chooses to continue with or abandon the peg. The study is not only crucial to Hong Kong, but also important to other economies with a CBS as well as to the debate on the choice of exchange rate system.

Keywords: currency board; monitoring band; exchange rate policy; Hong Kong; Singapore. (search for similar items in EconPapers)
JEL-codes: E58 F41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2005-05
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Persistent link: https://EconPapers.repec.org/RePEc:nan:wpaper:0505

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