Peg would act as bridge in event of finance war: Yam

Hong Kong should maintain its peg to the US dollar as the financial hub would be able to play a more prominent role in bridging capital flows between China and the US should there be a financial war between the two superpowers, said Joseph Yam Chi-kwong, the former chief executive of the Hong Kong Monetary Authority.

The Hong Kong dollar has been pegged to a tight band of between 7.75 and 7.85 versus the US dollar since 2005.

Yam also wondered whether most of Hong Kongs reserves should be used to invest in US Treasuries when Sino-US tensions soar.

He said the US wants to limit China's growth in order to maintain its dominance in the global economy.

Yam also warned that if the city keeps allocating most of its fiscal reserve to buy US debt, it may be tantamount to lending money to the US government, which may be in a financial or trade war with China.

Separately, Yam suggested setting aside a certain amount from the city's fiscal reserves to develop the Northern Metropolis, while adding that this has not been discussed in detail.

On Hong Kong's role under the "one country, two systems" framework, Yam said before the handover in 1997, Hong Kong already had a "deep understanding" of the framework and the role it could play as an international financial center and thus the city remained unscathed, despite the political and economic turmoil.

The role of Hong Kong is to protect the financial security of the mainland from being affected while developing investment and financing channels in bridging international capital with the mainland, Yam said.

He stressed that Hong Kong will always have a deep understanding of the "one country, two systems" and continue to be an international financial hub in the years ahead, regardless of any geopolitical tensions.

China requires more openness in the financial market due to its economic development while there is still a concern for financial security, Yam said.

When there are still capital restrictions, China can make good use of Hong Kong in linking overseas funds and diversifying investment and financing channels, he added.