内容分析案例lecture

1、Currency Boards the Case of Hong KongJohn Greenwood, Chief Economist, INVESCO16th February 2018OUTLINE OF THREE LECTURES by John GreenwoodLECTURE 1 (February 17th)Categories of Exchange Rate System & their Relation to Monetary PolicyCurrency Boards as a Special Case of Fixed Exchange Rates The Case

2、of Hong Kong LECTURE 2 (February 24th)China From Fixed to Managed Exchange RateThe Challenges of Liberalisation & DeregulationLECTURE 3 (March 3rd)Japan A Floating Exchange Rate System Japans Lost Decade and Deflation2Lecture 1 Outline: Currency Boards The Case of Hong KongCurrency regimes in the mo

3、dern world alternative approaches to monetary stabilityHow money is created bank balance sheets and central bank operationsCurrencies and convertibility banknotes and their backingHow a typical currency board operates balance sheet and operationsHistory & features of Hong Kong Currency BoardHow has

4、Hong Kong system worked in practice?Summary features of a Currency Board3HK$/US$ Exchange Rate, 1970-2018Basically a fixed exchange rate since October 1983Oct 19834Global Exchange Rate ArrangementsTypes of Exchange Rate MechanismFixed Exchange Rate Permanent or Temporary FixManaged Exchange Rate For

5、mula or Discretionary PegFloating Exchange Rate Clean or Dirty FloatCentral Banks Fixed, but AdjustableCurrency Boards Permanently Fixed Rates2. CHINA (to 2005)1. HONG KONGExternal AnchorInternal Anchor2. CHINA (from 2005)3. JAPAN5IMF Classification of Exchange Rate SystemsFrameworkCountries1.No Sep

6、arate Legal Tender (Permanently Fixed Rates) 412.Currency Board Arrangements* (Permanently Fixed Rates) 73.Other Conventional Fixed Peg Arrangements (inc managed rates) (Formula) 414Pegged Exchange Rates With Horizontal Bands (Formula)55.Crawling Pegs (Formula or Discretionary) 66.Pegged Exchange Ra

7、tes Within Crawling Bands (Formula or Discretionary) 17. Managed Floating With No Pre-Announced Path for Foreign Exchange Rate (Dirty Float) 518.Independently Floating (Clean Float) 35Source: IMF, International Financial Statistics, December 31st, 2004* Bosnia & Herzogovina, Brunei, Bulgaria, Djibou

8、ti, Estonia (to1/1/11), Hong Kong, Latvia (to1/1/14), Lithuania.6Source: IMF Working Paper/09/211 November 2009 7(2) Control the Price of Money(1) Control the Quantity of MoneyTwo Alternative Approaches to Monetary StabilityFixing the Quantity Requires:1)Central Bank must manage high-powered money o

9、r monetary base.Reliable forecast of required money supply for given price level and level of real GDP.Implies FLOATING EXCHANGE RATEFixing the Price Requires:1) Central Bank must supply or withdraw base money on demand2) Guaranteed convertibility of base money at fixed price F.3) Implies FIXED or M

10、ANAGED RATE F8Hong Kong Under the Silver Standard (1840s to 1935) No Currency BoardNo Central BankAssetsLiabilitiesCommercial Bank Balance SheetsAssets Liabilities Silver BullionBank Notes Issued- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Vault Cas

11、h (Notes & Coin) DepositsLoans and Investments Net WorthBalance Sheets of Non-Bank PublicAssets Liabilities Bank Notes Loans from Banks Deposits Bond issues Other Assets Net Worth9Hong Kong under the Sterling Standard (1935-72)Currency Board Balance SheetAssetsLiabilitiesUK Government Securities ()C

12、ertificates of Indebtedness(=CIs) (HK$-denominated)Net WorthCommercial Bank Balance SheetsAssets Liabilities Certificates of IndebtednessBank Notes IssuedVault Cash DepositsLoans and InvestmentsForeign Assets Foreign Liabilities Net Worth10Currency Note Issuance process androle as moneyBanknotes as

13、warehouse certificatesIssuance, circulation and redemptionDifferent types of “backing” or monetary “standards” - gold, silver, copper, iron, etc- “fiat” or paper money (e.g. US$ standard)Examples of banknotes issued in Hong Kong, China, Taiwan and Japan different backing, different wording (= differ

14、ent promises)Banknotes versus deposit money as a method of payment 11Currency Boards: Basic FeaturesTypically maintain 100% foreign exchange reserves as cover or backing for the note issue.in order to maintain convertibility of the local currency on demand at the fixed exchange rate.Typically do not

15、 (or cannot) conduct domestic open market operations.Domestic monetary conditions, interest rates, inflation etc determined by the balance of payments responding to conditions in the anchor currencys economy.SUMMARY: Currency Boards pursue passive, rule-based, non-discretionary operations. 12Hong Ko

16、ngs Post-1935 Monetary System1935-72: Orthodox currency board; peg to .1972-83: Abandonment of external anchor, floating exchange rate, monetary instability.October 1983: Restoration of the Currency Board with US$ anchor 1983-97: Initial results (exchange rate, interest rates, monetary growth, infla

17、tion)Asian Financial Crisis (1997-98) and later refinements of the HK Currency Board mechanism Recent Experience (1998-2014) and Assessment13How Hong Kongs Monetary System Went Off the Rails, 1972-83 June 1972: The Hong Kong dollar was shifted from being fixed to sterling to a fixed rate with the US

18、 dollarJune 1972: The commercial banks were no longer required to pay foreign currency for the right to obtain Certificates of Indebtedness (CI) with which to back their note issues. (Convertibility was undermined.)June 1972 - November 1974: Increased volatility of foreign exchange markets required

19、increased intervention in the foreign exchange market by the Hong Kong authoritiesNovember 1974: The Hong Kong dollar was floated.SUMMARY: From November 1974 until 1983 there was no convertibility at a fixed rate, and no means of controlling the money supply. 14HK$/US$ Exchange Rate, 1970-83HK$/US$

20、RATE70717273747576777879808182834.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 8.50HONG KONG DOLLAR TO US $ (MTH. AVG.) 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 8.50Source: DATASTREAMSeptember 1982: Start of Chinese-British Negotiations on the Future of Hong KongNovember 1974 HK$ Floated15Hong Kongs Currenc

21、y Crisis, September/October 198316Hong Kong: The Problem Underlying the 1983 Currency CollapseValue of MoneyQ (= Quantity of Money)1/PNo Fixed Anchor (A Meta-stable Equilibrium)P= f (M,y)M= f (E, m)17HK$/US$ Exchange Rate, 1970-2017Basically a fixed exchange rate since October 1983Oct 198318What are

22、 the implications of operating a currency board -for interest rates?for money supply growth rate? for economic growth rate and business cycle?for inflation?for the ability to deal with shocks? In sum, what are the conditions for success?19HK & US Interest Rates Converged under the Currency Board Sys

23、tem 83848586878889909192939495969798990001024681012141618024681012141618%3-mth HK$ Interbank Rate3-mth US$ Interbank Rate83848586878889909192939495969798990001-6-4-202468-6-4-202468%3-mth HK$ HIBORminus 3-mth US$ LIBORSept 98Sept 98July 88July 8820HK & US Interest Rates Converged under the Currency

24、Board SystemUS$ 3-M INTERBANK OFFERED RATE(LIBOR)HK$ 3-MINTERBANK OFFERED RATE(HIBOR)21Hong Kongs Monetary Growth Stabilized under the Currency Board System666870727476788082848688909294969800051015202530354045051015202530354045% YoYOctober 1983: Linked RateSystem for HK$ IntroducedHK Money Supply M

25、3 orHK$M322Hong Kongs Monetary Growth Stabilized Under Currency Board System - until the Asian Crisis of 1997-98HONG KONG: HK$M320/2/0682848688909294969800020406-505101520253035HK$M3 %YOY -5 0 5 10 15 20 25 30 35 Source: DATASTREAM%YOYAsian Financial Crisis, 1997-9823Hong Kong Monetary Growth since

26、1998 (HK$M3, %YOY)US Credit BubblePost-Asian Crisis HK$M3 growth very subduedand Bust24Under the Fixed Exchange Rate, HK & US Traded Goods Prices Converged except in Asian CrisisHK$ pegged, Oct 1983Asian Crisis, 1997-98US PRODUCER PRICESfor FINISHED GOODSHK EXPORT UNIT PRICES25Under Fixed Exchange R

27、ates, Non-Traded Goods Inflation (CPIs) do Not Necessarily ConvergeOct 1983, HK$ PeggedHK CPIUS CPI26Hong Kong & US Consumer Price Levels US CONSUMER PRICE INDEXor NON-TRADED GOODS PRICESHK CONSUMER PRICE INDEXor NON-TRADED GOODS PRICES27Hong Kong: Consumer & Export Price Levels Post-Asian Crisis Pr

28、ice AdjustmentHK Export Unit Valueor TRADED GOODS PRICESHK Consumer Price Index orNON-TRADED GOODS PRICES28Hong Kongs Productivity Growth Exceeded US Productivity Growth83848586878889909192939495969798990001-10-5051015-10-5051015% YoYUS Productivity GrowthHK Productivity Growth2980828486889092949698

29、000%10%20%30%40%50%60%70%80%90%100%0%10%20%30%40%50%60%70%80%90%100%Hong Kong: Dramatic Structural Changes Under the Currency Board (due to Opening Up of China)Manufacturing IndustriesWholesale, Retail and Import/Export Trades,Restaurants and HotelsTransport ServicesConstruction IndustriesGovernment

30、Employment by Major Sectors (%)30Hong Kongs Fiscal Prudence: Budget Surpluses have been the NormAVERAGE+1.4% p.a.HK GOVT BUDGET BALANCE31Hong Kongs Experience Under the Currency Board from October 1983 - SummaryExchange rate vis-a-vis US$ substantially stabilized.Amplitude of fluctuation of monetary

31、 growth reduced.Interest rates now track US$ rates, except during periods of large inflows or outflows. Traded goods price inflation converged to US inflation. However, non-traded goods price inflation initially exceeded US inflation (to 1998), then fell below US inflation (due to Asian crisis).Flex

32、ibility of the HK economy permitted large structural changes.Fiscal Prudence: Budget Surpluses Averaged +1.4% of GDP.Financial Supervision: Authorities Ensured that Banks Maintained High Capital Ratios (to absorb interest rate and other shocks better).32After the Asian Financial Crisis (1997-98), Ho

33、ng Kong Adjusted by Internal Deflation200433Lessons of the Early Years (1983-88) and the Asian Financial Crisis (1997-98) for Hong Kong1983-88: Credit creation was still occurring that was inconsistent with the balance of paymentsSOLUTION (1988): Replace private clearing house with HKMA control of m

34、oney markets, 1988-98.In Asian Crisis (1997-98) interest rates were driven sharply higher due to speculation against HK$SOLUTION (1998): Create reserve accounts at HKMA for all banks, plus discount window to enhance available liquidity in emergency. Therefore HKMA created discount window using EFBNs

35、 (Exchange Fund or Currency Board bills & bonds) on overnight basis at penal rates (effectively lender of last resort facility acting as shock absorber)34Hong Kong After the Asian Currency Crisis (1998 onwards)Currency Board Balance SheetAssetsLiabilitiesForeign Currency SecuritiesCertificates of In

36、debtedness(1)Clearing Balances of Banks(2)Currency Board Bills & BondsNet WorthCommercial Bank Balance SheetsAssets Liabilities Certificates of IndebtednessBank Notes IssuedVault Cash(1) Clearing Balances of Banks DepositsLoans and Investments(2) Currency Board Bills & Bonds Foreign Assets Foreign L

37、iabilities Net Worth35Currency Boards: Conditions for SuccessCurrency Board Large Foreign Exchange Reserves (100%+ is best)Complete convertibility between Monetary Base and all other components of the Money SupplyMarkets Flexibility in Product & Factor Markets e.g. in all prices, wages, & economic s

38、tructureFree flow of goods, services and capital across international bordersBalance SheetsBanks: Strong financial supervision to ensure banks remain sound, have ample capital, liquidity etc.Government: Fiscal prudence, esp. not too much borrowing from abroadHousehold & Corporate Sectors: Control leverage thru Macro-prudential controls (Loan-to-Value ratios) for residential & commercial mortgages 36Currency Boards Systems (as of December 2007)Country Population GDP (US$) Start Exchange rate/note Bermuda UK 63,000 $2 billion 1915 Bermuda $1 = U