The Internationalisation of Hong Kong Dollar: An Analytical Framework
Kenneth Chan ()
No 12001, Working Papers from Hong Kong Institute for Monetary Research
This paper models the macroeconomic impact from the "internationalisation" of Hong Kong Dollar under the fixed and floating exchange rate regimes. A three-region model, the Centre, the Periphery and the Rest-of-the-World, is constructed. The present paper finds that, under floating exchange rates, foreign circulation of home currency increases the volatility of the home exchange rates. Under a fixed exchange rate, however, other than a more volatile level of reserves, foreign circulation has no macro impact on the home economy. This paper also finds that a broader global demand for home asset narrows the gap between domestic and foreign interest rates, which can subsequently lower the likelihood of self-fulfilling currency crisis.
Pages: 15 pages
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Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:012001
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