Talks again hurt Hong Kong dollar

Press, 27 September 1983, Page 21

Talks again hurt Hong Kong dollar

NZPA staff correspondent Hong Kong

The Hong Kong dollar has continued to free-fall on foreign exchange markets in the wake of a bald statement that negotiations on the territory’s future will continue next month.

A positive statement had been hoped for, after the end of the latest round of Sino-British talks last week.

For the people of Hong Kong, and especially the banking and business community, the lack of hard information on the progress of the talks and a series of statements from the Chinese on its plans for the territory after 1997, when the majority of Hong Kong reverts to mainland China, have fuelled uncertainty. The latest plunge by the Hong Kong, dollar, from Friday’s close of 8.80 to the United States unit, to Saturday’s close of 9.50, drew predictions the 10.00 mark was likely to be broken before the month was out. The local dollar had already broken through what had been regarded by financial analysts as a psychological barrier, of $8 to the United States unit, earlier in the month. Trade was thin on Saturday and one way, with much of the demand for American dollars coming from gold merchants using them as the intermediate currency on almost panic buying of gold taels at shops throughout the territory. The local gold price closed sharply higher at $4705 Hong Kong a tael,

after earlier touching a three year and a half high of $4750.

The currency has been on a downward trend for some months with each series of talks on the territory’s future serving only to drive the dollar down further.

Many smaller Hong Kong banks ran out of United States currency at the week-end for customers who wished to take cash away with them, but the deputy secretary for Monetary Affairs, Mr A. R. Latter, said the banks were solvent and the Hong Kong system would not collapse. Reiterating earlier statements that the Hong Kong Government would not attempt to stop the dollar’s slide, Mr Latter said there was no evidence anywhere in the world that governments could stem a fundamental slide in a currency. “I agree the whole foreign exchange market has gone wild,” Said Mr Latter.

“I wouldn’t use the phrase out of control myself but I would not refute the suggestion that things are getting totally out of hand,” he said. The Hong Kong Association of banks said it would maintain the present interest rate structure.

Earlier this month, a 1.5 per cent rise in the prime interest rate with the aim of shoring up the currency proved to be ineffective, and analysts say that leaving the rates alone is “prudent” in the circumstances. The dollar’s nose-dive has reinforced the belief that only a firm statement on arrangements for Hong

Kong under Chinese rule, acceptable to Hong Kong people, will avert the current crisis of confidence. Ironically, the latest talks appear to have taken place in a relaxed and positive atmosphere, with the Hong Kong Governor, Sir Edward Youde, describing the negotiation as useful. He also restated that the fact the talks were continuing was in itself a good sign.

The substance of the talks is understood to revolve around the extent to which the British Government will continue to have a part in the administration of Hong Kong — the world’s third biggest financial centre —

after 1997. The Bank of New Zealand suspended its trading in Hong Kong currency for a period yesterday. A spokesman said the bank was unwilling to quote an exchange rate without an indication of what the currency was trading at on overseas markets after the week-end.

Quotes were suspended infrequently and it was a way of avoiding the risk of quoting on a wildly fluctuating currency a rate greatly out of line with those on overseas markets, he said. New Zealand banks set their exchange rate on the basis of the relationships between the Hong Kong and American dollars, and the New Zealand and American dollars.

The price of Hong Kong dollars in this country has fluctuated recently, although the spokesman said his bank did little trading in Hong Kong currency.