Crony Central Banking in Hong Kong

HONG KONG – Joseph Yam, the head of the Hong Kong Monetary Authority (HKMA) and a career civil servant, is retiring. Ordinarily, that should not be a newsworthy event, yet it is, and for good reasons.

Donald Tsang, Chief Executive of Hong Kong’s government, has the opportunity to restore integrity and proper governance in one of the most important statutory bodies in the territory by choosing a person solely on the basis of unimpeachable honesty and competence.

Yam remains a hero to many in Hong Kong, including journalists unschooled in international finance. To them, he is the guardian of the Hong Kong dollar, which has been fixed at 7.8 to the US dollar for 26 years.

During the 1998 financial crisis, devaluation would have hurt those who owned local real estate but had little earnings or assets in US dollars. Not surprisingly, Hong Kong’s oligopoly of property tycoons opposed changing the peg despite the currency’s gross overvalue at the time. The 7.8 exchange rate was maintained at the cost – borne by all citizens – of six years of economic stagnation.