Impractical to peg Hong Kong dollar to yuan: monetary authority

WASHINGTON, Nov 14, 2007 (AFP) – Hong Kong’s de facto central bank on Wednesday dismissed suggestions that the Hong Kong dollar, which is at present pegged to the US dollar, be repegged to the Chinese yuan currency.

It is impractical and does not make economic sense, Eddie Yue, the deputy chief executive of the Hong Kong Monetary Authority (HKMA), told an international monetary conference in Washington.

The Hong Kong dollar’s peg to the US dollar came under pressure recently due to a huge demand for the local currency for purchase of shares on the territory’s stockmarket amid a weakening greenback.

It pushed the exchange rate outside its strict band, sparking concerns over the sustainability of the link, which has been a fundamental part of the city’s monetary policy since 1983.

A rapid development of yuan-related banking business in Hong Kong has also raised fears that the Hong Kong dollar may be marginalized and the exchange rate be switched to a yuan peg.

But Yue listed various “constraints” for such repegging, saying “at the practical level, it is just not possible for the Hong Kong dollar to be repegged to the renminbi (yuan).

“The Hong Kong dollar peg to the US dollar will remain