More than three years of experience of one country two systems have shown that China's commitment to allowing Hong Kong autonomy in its monetary policies is a reality.
Having just returned after a rather long trip to explore with other central bankers how global financial stability might be enhanced, I was seated alone one rainy Sunday afternoon in my comfortable armchair next to my bookshelf at home. I was, as this old song called "The Lost Chord"* playing on my stereo at the time put it, "weary and ill at ease". As the song continued, my fingers wandered idly along the small collection of books on the shelf. I know not what I was looking for, or what I was dreaming then. But Two Lucky People, by Milton and Rose D. Friedman, somehow stood out from the shelf and offered much attraction for the occasion. A yellow tag stuck out from a page towards the back, no doubt put there by Eddie my Administrative Assistant to draw my attention to a particular passage in the book. I picked it up and turned directly to the page with the yellow tag. It was page 557 and in it Milton described his observations on a lunch that he had attended in Hong Kong on 29 October 1993.
Milton wrote: "We also met for lunch with a much smaller group of about fifteen movers and shakers which Richard Wong had arranged as part of his fund-raising effort. They all were active in the Hong Kong economy and very well informed, so we had a most interesting discussion, centering of course on the future of Hong Kong after the coming takeover by China. I asked the participants whether they had arrangements that would enable them to exit Hong Kong if that proved necessary after China took over. All but one did. The one who did not was Joseph Yam, the head of the Hong Kong Monetary Authority. He expressed complete confidence that Beijing would live up to every detail of its agreement with Britain and in particular would not interfere with the maintenance of a Hong Kong dollar unified with the U.S. dollar and trading at a floating exchange rate with the Chinese yuan and would not impose exchange or capital controls. That is the politically correct position for him to take, but I [...] suspect that he has private doubts. At any rate, I expressed grave doubt that China would be willing to tolerate two independent national monies trading at a floating exchange rate. The only precedent in monetary history that I recall was during the Civil War period in the United States when gold and greenbacks both served as money and traded at a market rate. Perhaps there are others."
It is now almost seven years since that lunch and over three years after the "takeover", as Milton put it. My personal position has not changed. Hand on heart, I can say that I still have complete confidence that Beijing will "live up to every detail of its agreement with Britain". I still have complete confidence that Beijing will "not interfere with the maintenance of a Hong Kong dollar unified with the U.S. dollar and trading at a floating exchange rate with the Chinese yuan". I still have complete confidence that Beijing will "not impose exchange or capital controls" in Hong Kong, as clearly laid down in the Basic Law. This is not just a "politically correct position" for me to take, it is truly and simply the correct position. I did not have "private doubts" and I still don't.
But then Milton will probably say that with only three years experience of the new system, it's far too early to tell. I totally accept that. But it has been a very good start, hasn't it? - a chord of music, like the sound of a great Amen, has indeed been struck, one that emerged clearly against a very disturbing and highly unfavourable background.
I was too tired to read on. I closed the book, sank low into my comfortable armchair and dosed off, pleased that Richard Wong and the other thirteen movers and shakers are still in Hong Kong.
21 September 2000
* The Lost Chord is an old song by the English composer Arthur Sullivan, which I learned 34 years ago in high school here in Hong Kong. The words of that song are as follows: "Seated one day at the organ, I was weary and ill at ease, and my fingers wandered idly, over the noisy keys. I know not what I was playing, or what I was dreaming then. But I struck one chord of music, like the sound of a great Amen, like the sound of a great Amen ....."
More information on the song "The Lost Chord" can be found here.
More information on the Application of the "One Country, Two Systems" Principle can be found here.
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