THE Hong Kong Monetary Authority has attacked a prominent monetarist's forecast that the local currency peg with the United States dollar will not last until the turn of the century.

Authority spokeswoman Julia Leung said she was "surprised" by the outburst from Milton Friedman in the latest issue of the Far Eastern Economic Review.

Dr Friedman, 83, predicted the demise of the Hong Kong dollar within two years of the 1997 handover. He also predicted the absorption of the territory's financial reserves by Beijing.

He said that Beijing coveted the US$43 billion (HK$335.4 billion) held in the authority's foreign reserves and would not be able to stomach the US running Hong Kong monetary policy.

Ms Leung said: "I think both the Basic Law and the Sino-British Joint Declaration have clearly stated that Hong Kong will be free to decide its own monetary policy and mechanism in the post-1997 period."

The monetary system is protected by the law, she said.

"And therefore, I think what Mr Friedman has said is almost anti-constitutional," she said.

Asked whether the market would be overshadowed by such statements, Ms Leung said that the best answer was from the market itself.

Both three-year and five-year exchange fund bonds issued by the authority, which expire after the 1997 takeover, have received overwhelming response from investors, she said.

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