What Are The Weaknesses Of The Hong Kong Crisis

valuating of the Yuan. This major focus is on China, due to fears that currency manipulation may

In the 1990’s both Korea and Taiwan had embarked the process of financial liberalization and maintained the momentum up

Even analysists with advance education and years of experience did not foresee the above patterns, and additionally are rather confounded as to why the rates are acting in such a manner. The Bank of Japan (BOJ) has taken steps to halt the appreciation of the yen by decreasing interest rates (Hunter, 2016). While at the same time, many are accusing China of

In fixing the exchange rates, central bank trades domestic and foreign exchange reserves to adjust the money supply such that the domestic interest rate equals the foreign interest rate. Since the Chinese’s foreign exchange reserves mainly compose only of US government and institutional bond, most of our analysis will relate more on the impact

In 1997, there occurred certain shifts in expectations from the market. The regional contagion and confidence led to the East Asian financial turmoil. In 1990s, it had been reported that the microeconomic and macroeconomic businesses were not performing as expected. The local and international investors had not held enough grips into the looming financial challenges to be expected by the financial fragments. These investors panicked and participated in fraudulent and faulty approaches and policies of operation in the market through the influence of the International Monetary Fund together with the global financial body. The financial policies, which were laid by the small businesses within the region, had failed to bring enough financial performance in the local and international market. For instance, reports claim that these businesses were not large enough to hold immense support to the structure of the economy in the region. With time, the stability of the financial structure was brought to question. This was later contributed by the influences obtained from the international financial bodies and the International Monetary Fund committee (Corsetti, Pesenti, & Roubini, 1999, p.305-6).

A speculative attack is a precipitous acquisition of assets such as gold, currency, or permits, by previously inactive speculators. A speculative attack is caused by the massive selling of a country’s currency by both domestic and foreign investors. Countries that use a fixed exchange rate (an exchange rate that is fixed against that of another currency, or a basket of currencies) are much more at risk to a speculative attack than those that use a floating exchange rate. This is because countries with a fixed exchange rate tend to hold a lot more reserves than those with a floating exchange rate. Countries have two choices when undergoing a speculative attack, they can either maintain a fixed exchange rate, or withdraw their currency. If a country were to maintain their fixed exchange rate, they run the risk of having a serious economic depression or a financial collapse.

As a result, all the profits earned by the Chinese exporters are to be hand over to Chinese government. This also result to restriction of flow of RMB out of China as we know that China is the second largest economy in the world that many transactions are occurred daily between China and other foreign countries. Thus, it is important to restrict the large amount of RMB flowing outside of China. Other than that, the Chinese government has launch a gradual policy of developing the transaction in the RMB as China want to find a way to prohibit people who desire to get the RMB being freely traded. Thus, Chinese government choose to develop this policy through its onshore offshore market, Hong Kong. In Hong Kong, they have their own currency named Hong Kong dollar (HKD), being floating against the global currencies. However, through the policy adopted by Chinese government, Hong Kong’s people are able to hold RMB in either cash or in bank deposits, and their maximum daily transfer are just RMB 20,000. There is also limited trading in Hong Kong. The main purpose China do this policy is because of avoiding RMB flowing out of China but at the same time let the

Hong Kong is known for their small and free economy system. They are deemed as the global monetary foundation. Due to the influence of the worldwide economic catastrophe, its economic growth confronts various new trials. As a result, a complete examination of the Hong Kong’s financial growth and their prominent production standing becomes a vital matter. Hong Kong is presently the world’s most service oriented economy, with facilities divisions responsible for more than 90% of GDP. After the Chinese mainland it is measured as the second major beneficiary of the foreign direct investment and it is the third major cause of FDI in Asia, following Japan and Chinese mainland.

In 1997, the Asian Financial Crisis spread rapidly all over the Asia and affected almost all the economies in the world. Prior to the Asian Financial Crisis, the Asian countries such as Thailand, Malaysia, South Korea, Indonesia, Hong Kong and Singapore experienced a remarkable growth in the economy that was considered the highest in the world. These Asian economies increased by a notable proportion of 6 to 10 percent annually in the GDP. However, what had been regarded as an Asian miracle seemed to crumple down rapidly 1997 when these Asian countries were faced with a severe financial crisis in their local stock and currency

On August 11th China’s central bank has cut the rate of the national currency, the Yuan by nearly 1.9%. The next day it devalued it by a further 1.6% to around 6.3306 per dollar and on the next day by a further 1.1% (Chandran, 2015). It seems to be a really small devaluation, but because China’s rapidly economy growth is such a major motor for the global economy, this policy could be a wave to Chinese market, even the global economic market. This essay will talk about the impacts of devaluation of Yuan for both Chinese economy and other countries’ economy. Firstly, it presents reasons why China decided to devalued Yuan. Then, it outlines the possible influence taken by that policy in China. Finally, it examines what will happen if China’s

The baseline outlook for US monetary policy next year suggests the continued normalisation of the federal funds rate at a glacial pace, while the size of the Fed’s balance sheet will also start to fall at a slow rate. Clearly, the Federal Open Market Committee (FOMC) is seeking not to unnecessarily jolt financial markets, because changes in US monetary policy have truly global implications. Notably, those countries operating fixed exchange rates versus the US dollar will be directly impacted by the Fed’s normalisation plans, most notably Hong Kong which operates a currency board. According to the International Monetary Fund (IMF), there are 39 countries with exchange rate

companies and investments in financial instruments. Fourth, the currency turmoil affects U.S. imports and exports as well as capital flows and the value of the U.S. dollar; the U.S. deficit on trade was rising as these countries import less and export more. Fifth, the crisis is causing economic turmoil that is exposing weaknesses in many financial institutions in Asia; some have gone bankrupt. The economic problems of the troubled Asian economies are adversely affecting the United States, Japan, and others.

From the perspective of Hong Kong, firstly, Hong Kong government advocates a free market and free enterprise framework, which could create a favourable business environment for new enterprise whose intend to invest in Hong Kong (Trade and Industry 2015).

In the past 15 years, Hong Kong interest rates and exchange rates fluctuated in the same trend of the US interest rate and exchange rate. The graphs below show an example of interest rate and exchange rate respectively:

Fifth, the Hong Kong government set up department to consult people’s opinions. The Hong Kong government relied on the Secretariat for Chinese Affairs to establish communication with the Chinese people. The department was established in 1913. It carried out different functions, involving it in almost all Chinese matters, like receiving complaints from the Chinese and mediated and settled their disputes. It helped the government in knowing the local Chinese people well. It assisted the government in liaising with Chinese associations so that it can understand the public opinions. The department provided the government with information of the Chinese, for example, the Chinese custom and religious belief, and helped explaining the policies to the public. It helped the government to gain better understanding from the Chinese, especially before the Second World War.