Money man made peg add up

City talk | Siu Sai-wo 5 Jun 2020

As China and the United States cross swords over the Hong Kong national security law, some worry Washington might unpeg the local currency from the greenback or even ban the SAR from using the US dollar for clearing and settlement.

The reality is that such moves would hurt foreign interests deeply, so the United States or others in the Western world should theoretically not do what an old saying sees as "ingesting arsenic to poison the tiger" - doing something that harms others without benefiting oneself.

The exchange rate link has been in force and worked efficiently since it was established in 1982 by then financial secretary John Bremridge. Over the years, the system has been fine tuned, but the rate of one US dollar to 7.8 Hong Kong dollars has remained unchanged. How, then, was the rate determined back in the day?

Some say Bremridge was worried about a drastic swing in the value of the Hong Kong dollar upon the handover, so he projected a possible range of fluctuations, averaged out the highest and lowest points, and came up with 7.8.

It was also said he purposely avoided using an integer for the rate to give the public the impression it was arrived at through scientific methods, which would enhance confidence in the link.

Psychological effects aside, some in the banking sector believed at the time that employing a range-based calculation let Bremridge keep the rate down to give a de facto depreciation to the local currency.

It was a "kill two birds with one stone" maneuver that made it easier for Hong Kong to defend the linked rate while boosting its export competitiveness, they said.

Before joining the government, Bremridge was a top manager at Hong Kong Swire, so some surmised he was setting up the peg to safeguard the business segments of Swire that were sensitive to political jolts, such as aviation.

In any event, Bremridge did much good work during his term as the administration's financial chief and won praise from the commercial sector from where he hailed.

Ingenious and straightforward, he was even rated by some as the most brilliant local financial official of all time. However, it would seem that transplanting talent from a big enterprise directly to a top government post, like in the case of Bremridge (1925-1994), is not something you can do any more.

Siu Sai-wo is publisher of Sing Tao Daily

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