Favorable influence
Hong Kong is a small-scale and highly open export-oriented economy. The total trade in goods and services is about three times of GDP, in which foreign capital and foreign trade account for a large proportion in the economy, and economic growth is often affected and restricted by various unpredictable and uncontrollable external factors. Practice shows that the linked exchange rate system has not only been limited to the role of "political emergency" at the beginning, but has developed into an economic means, enabling Hong Kong to effectively resist external financial and political shocks. For Hong Kong, because of its typical export-oriented economy, the economy has a strong dependence on the outside world, and the growth of the local economy is often influenced and restricted by various unpredictable and uncontrollable external factors. In this case, it is very important to maintain the linked exchange rate system. Hong Kong can benefit from the overall stable monetary environment and highly credible monetary policy of the United States, which can effectively reduce foreign exchange risks in international trade and economic life, and is conducive to the conclusion of various long-term trade and contracts and the accumulation of international capital. In this case, the Hong Kong dollar is pegged to the US dollar, which stabilizes the exchange rate, reduces a lot of foreign exchange risks in international trade and economic life, and is conducive to the conclusion of various long-term economic and trade contracts and the collection of international capital, thus bringing more benefits and opportunities to Hong Kong. These can also be said to be the internal roots that lead to the emergence and persistence of the linked exchange rate system. However, the linked exchange rate system also has adverse effects on Hong Kong.
counteraction
First of all, under the linked exchange rate system, the monetary authorities cannot implement an independent monetary policy and use exchange rate changes as an economic adjustment mechanism. Compared with the free floating exchange rate system, when competitors' currencies depreciate sharply or the export market economy declines, the competitiveness of Hong Kong products will decline. In addition, Hong Kong should follow the monetary policy of the United States, but because the economic cycles of Hong Kong and the United States may be inconsistent, Hong Kong's interest rate level may not adapt to the local macro-economic form, and the Hong Kong dollar interest rate temporarily deviates from the US dollar interest rate, resulting in spreads, which may sometimes affect currency stability and even be manipulated by speculators for profit; The Hong Kong dollar continues to be pegged to the US dollar, and Hong Kong's economy and financial market are increasingly influenced by the mainland economy. The current monetary policy in Hong Kong is increasingly unable to meet the demand of uncoordinated economic development, such as the influx of hot money and the widening spread.