The Hong Kong Currency Board During the 1997–8 Crisis: Problems and Solutions

Nai‐fu Chen

International Review of Finance, 2001, vol. 2, issue 1‐2, 99-112

Abstract: The note‐based Hong Kong currency board was ineffective in dealing with currency speculations at the start of the Asian financial crisis in 1997. The makeshift modification implemented by the Hong Kong Monetary Authority imposed implicit controls on the capital outflow and produced high and volatile interest rates. There are simple solutions. We examine the merits and evidence related to the issuance of currency put options by the monetary authority as a commitment against devaluation. Furthermore, a simple mechanism linking the domestic credit demand to the reserve currency base will induce proper interest‐rate dynamics for a currency board to function properly.

Date: 2001
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International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

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