Hong Kong dollar-peg creator says HK can ditch the peg

The former head of the Hong Kong Monetary Authority, in charge when the U.S. dollar peg was launched, says it's time for Hong Kong to get rid of the peg.

HK 'can ditch dollar peg' - Yam

The peg is considered a pillar of the city's financial stability and is such a sensitive issue that officials hardly ever talk publicly about it. Yam is the highest ranking former official to publicly question it.

This is all the more remarkable given that one of his career highlights as head of the Hong Kong Monetary Authority was his successful defence of the currency mechanism amid tremendous pressure during the 1997 Asia financial crisis. He pushed the overnight interbank rates up to 280 per cent to squeeze speculators from the currency market.

Now his questioning of a policy he once defended is bound to kick-start debates over the currency's future.

Many public figures in recent months have criticised the peg for contributing to inflation, but none of them carried the political and intellectual weight of Yam.

'Too-hasty' Yam gets taken down a peg

Responding after Yam's briefing, chief executive-elect Leung Chun-ying said the former central banker had not talked to him before releasing the paper.

Leung said Yam's views were purely personal and had absolutely nothing to do with the new government, which would stick to the peg.

In fact, if Leung had not beaten rival Henry Tang Ying-yen in the chief executive election in March, Yam's proposal might well have been adopted by the new government.

Yam, a long-time colleague of Tang, was known to be the former chief secretary's senior adviser during the campaign. And in an interview with the Wall Street Journal in March, Tang said he did not rule out adjusting the Hong Kong dollar's trading band against the US unit if he was elected.

Tang did not spell out when would be the right moment for such a change, saying only that he would bear it in mind as a possibility to serve the best interests of Hong Kong when necessary - words that Yam strongly echoed yesterday.