| Summary: | The Chinese Yuan (RMB) has been appreciating persistently in
the past years and this rise in value is expected to continue in the next
decade. Although Hong Kong is a Special Administrative Region in
China after the handover in 1997, its currency is still adopting the
fixed exchange rate system against the US Dollar (USD), which is
experiencing continuous depreciation in the past few years. This
contradiction has serious implications on Hong Kong���¢��������s economic and
financial markets both in the near future and in the long run. In the
past few months, there has been a flood of HK dollars (HKD)
deposited in local banks switching over to RMB causing tremendous
pressure on the Hong Kong���¢��������s financial system. China���¢��������s top financial
officials have warned against the rising tide of RMB and, as a
temporary measure to stop the fleeing, have widened the buying and
selling rates for exchanging between RMB and HKD.
This dissertation aims to address these issues and the topic is
discussed in four main parts. In the first part, a literature survey is
carried out on the historical and present relationships among the
three main currencies: HKD, RMB and USD. In the second part, the
current status of RMB and USD and their predicted movements in the
long run are investigated. The third part analyzes the impact of RMB
appreciation on Hong Kong���¢��������s economic and financial system. Hong
Kong���¢��������s past trend of using the Pearl River Delta region in Mainland
China as its industrial and manufacturing hub might have to be
reversed if the trend continues; and how the banking systems and the
stock and property markets will be affected. Furthermore, China���¢��������s
mainland listed A-Stocks versus China���¢��������s Hong Kong listed H-Stocks as
well as the rising property prices just across Hong Kong���¢��������s border are
studied. In the final part, what can be done to alleviate the situation
is addressed and recommendations proposed among three possible
options: pegging with the USD, pegging with RMB and pegging with a
basket of currencies.
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