Hong Kong's secret strength

hoov hoov at freenet.tlh.fl.us
Tue Jul 28 07:18:45 PDT 1998

> the Hong Kong Currency Board System
> Private ownership of land is
> illegal!!
> Chris Burford

In Hong Kong, historically, bank notes are issued by a few designated commercial banks. The colony adopted the silver standard before its collapse in the 1930s. In 1935, Hong Kong moved to a 'currency board' system. However, no currency board actually existed. Instead, an 'exchange fund' was created and controlled by the colonial treasurer, and it acted as the ultimate backing of for the notes issued by three designated note-issuing banks (NIBs). In issuing HK$ bank notes, the three NIBs had to deposit sterling at a fixed rae with the exchange fund, receiving in exchange certificates of indebtedness, with which the NIBs could issue equivalent amounts of notes.

Prior to 1972, Hong Kong, as a member of the Sterling Area, was under foreign-exchange control empowered by the UK's finance regulations of 1939. When sterling was floated in 1972, foreign-exchange controls applicable to the Sterling Area were dismantled. After a period (1974-9183) in which the HK$ was floated, the currency was pegged to the US$ at the rate of HK$7.80/US$ under a "linked exchange rate system" (commonly called 'the link'). The link (which is still in effect) was a rescue measure in a crisis caused by the dispute between China and Great Britain over the future of the colony. The link is a resurrection of the 'currency board' scheme adopted in the territory between 1935-1972. Hong Kong does not have a central bank (although a montary authority was established in 1993). Because HK$ are pegged to US$, Hong Kong's monetary policy is, in effect, made in Washington, D.C., by the Federal Reserve.

Upon colonization in 1843, the British distributed land to private interests on the basis of their ability to pay. Many of the original lot purchasers were more interested in speculation (fueled by the scaricty of land) than in establishing residences and so the government established land-lease terms. Land management became the chief means by which the colonial government raised revenues. Today the government owns all the land. The purchase of land-use rights goes to the highest bidders. One result is an unsightly mess imposed on what may have been the world's most spectacular natural harbor. Joseph Schumpeter's conception of 'creative destruction' is on display everywhere as industrial factories give way to opulent hotels which, in turn, give way to office spires in only a few years. This 'land policy' is a cornerstone of Hong Kong's economy. The profitability of major firms depends heavily on earnings from real estate that reflects the earning power of tenants.

Nowhere is social class polarity in Hong Kong more evident than in residential patterns. Much of the population lives on less than 5% of the land in the crowded towns of Victoria and Kowloon, About 120,000 people (total pop. 6.5M) live in what the government calls 'temporary housing' (hovel dwellings, squalid shantytowns on the hillsides). Another 80,000 live on boats in the harbor. Hong Kong's population density, the world's highest, is most graphically revealed in the 150,000 people per square kilometer living in the poor district of Monkok. Today, almost 50% of the population lives in public housing, the result of policy begun in the aftermath of a major fire in 1953 and the government's subsequent city planning program intended to link the alleviation of housing shortages to industrial development. Michael Hoover

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