Weaponized finance to hurt US too, says Yam

Top News | Winnie Lee 30 Jul 2020

The Hong Kong Monetary Authority's former chief, Joseph Yam Chi-kwong, expressed concerns over America's threat to "weaponize finance" but added sanctions would not harm the SAR's financial system unless there was a ban on the US dollar.

Yam said President Donald Trump and Secretary of State Mike Pompeo have talked about weaponizing finance, which could potentially include restricting the use of the US dollar in Hong Kong, banning mainland corporations from investing in America, halting US investments in the mainland or even banning mainland enterprises from raising funds in the United States.

Yam admitted on an Insight Forum webinar by Our Hong Kong Foundation that restrictions on the US dollar would be a strong weapon and urged the market not to underestimate its potential impacts.

He called a potential ban on the use of US dollars for settlement and transactions in Hong Kong a "nuclear bomb-level" financial weapon. But Yam said such a move would have a negative impact on America too.

He said a lack of US recognition of Hong Kong-held American debt would amount to a default.

But Yam predicted that Washington is more likely to impose sanctions on select individuals and companies, creating a limited impact. He said he believes it would not affect the SAR's role as an international financial center.

He noted that Hong Kong's financial system remains robust, with capital continuing to flow in.

Even a "third wave financial crisis" would not lead to a systemic crisis, Yam added.

In previous years, Yam suggested depegging the Hong Kong dollar from the US dollar.

But he also later advised that Hong Kong, as an international financial center and in order to achieve the greatest benefits, should be linked to the most circulated currency in the world, which is the US dollar.

However, Yam at the time warned that US dollar monetary policy was unstable and the euro had a "problematic nature," so he also suggested the adoption of the yuan as a "third leg" to stabilize the market.

Despite capital controls in the mainland and the yuan needing to become more internationalized, Yam suggested that the Hong Kong stock market could trade in the currency.


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