Reply #21: IMF says HK dollar peg remains appropriate

[Ghost Dog]

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061206:MTFH91257_2006-12-06_03-38-15_T265949&type=comktNews&rpc=44

HONG KONG, Dec 6 (Reuters) - Hong Kong's exchange rate link with the U.S. dollar remains the "appropriate" monetary arrangement for the territory, despite a rise in the Chinese yuan, the International Monetary Fund said on Wednesday.

The gradually appreciating yuan <CNY=CFXS> is expected to reach parity with the Hong Kong dollar <HKD=> at 7.8 to the U.S. dollar within the next few months. It would be the first such occurrence since 1992.

However, Paul Gruenwald, the IMF's representative in Hong Kong, said that would not affect the territory's currency stability.

"Hong Kong's traditional strengths would remain even after the "crossing" and the factors accounting for the currency board's past success would continue to apply," Gruenwald said in a statement. "The present monetary arrangement, with its link to a fully convertible currency, remains appropriate and we strongly support the authorities' commitment to the linked exchange rate system."

Gruenwald said the Hong Kong dollar peg, which was introduced in 1983, had worked well because of the territory's highly flexible wages and prices.

"Underpinning confidence in the system are strong public finances and a well regulated financial system," he said. "Central to this success has also been the complete absence of capital account restrictions, which has allowed Hong Kong to develop into a major international financial centre."

The yuan's rise has led some speculators to bet that Hong Kong could link its currency to the yuan rather than the U.S. dollar.

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