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Hong Kong defends currency
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August 18, 1997: 11:05 a.m. ET
Monetary chief says he will 'burn' speculators who attack currency
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NEW YORK (CNNfn) - Hong Kong's dollar, the only major southeast Asian currency yet to be devalued, is unlikely to be floated anytime soon -- at least if Joseph Yam has anything to say about it.
Yam, the Hong Kong Monetary Authority's chief executive, said Sunday he would "burn" any currency speculators who try to attack the HK dollar in the same way other regional currencies have been attacked.
"Those banks involved in the speculation will suffer by paying a high interest rate to get the Hong Kong dollar funding to settle the deals," Yam told the South China Morning Post.
"The speculators who sell short the Hong Kong dollar will get burned," he said.
While regional neighbors Thailand and Indonesia have recently allowed their currencies to float freely, Hong Kong continues to peg its currency to the U.S. dollar. Since 1983, the Hong Kong dollar has been held at 7.8 per U.S. dollar.
Now, with the handover to China completed, Hong Kong has a friend with deep pockets to defend its currency, said currency strategist Kit Juckes of NatWest Markets.
"[The Chinese] are not about to lose face and they have $200 billion worth of reserves that says they don't have to," said Juckes. "If they really don't want to [float the HK dollar], they don't have to."
Some analysts say Hong Kong's stern defense of its currency could have the adverse effect of weakening its exports. The recent string of devaluations in other southeast Asian currencies have made those countries' goods more competitive against those from Hong Kong.
Hong Kong is helped, however, by strong economic fundamentals and low overseas debt, said NatWest's Juckes. "Hong Kong doesn't have the kind of big current account deficit that you had in Thailand."
Despite those strengths, Hong Kong's Yam said he will remain ever vigilant, telling would-be speculators to "beware."
-- Randy Schultz
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