- The Washington Times - Wednesday, May 18, 2005

HONG KONG (AP) — Hong Kong said yesterday it would put a cap on its currency’s exchange rate to the U.S. dollar, but an official denied that the move signaled China soon would revalue its currency.

The government set a trading band of between 7.75 Hong Kong dollars and 7.85 Hong Kong dollars to the U.S. dollar.

Joseph Yam, chief executive officer of the Hong Kong Monetary Authority, said the change was aimed at reducing the Hong Kong dollar from being used as a proxy for speculation on the Chinese currency, called the yuan or renminbi.

“The refinement is to remove concerns and worries,” Mr. Yam told reporters.

Recent speculation that China would revalue its currency has caused money to flood into Hong Kong, whose open markets are a favored way for traders and investors to gain exposure to China.

The flow of funds has pushed interest rates to unusually low levels, and this has threatened to spark inflation.

In recent months, the Hong Kong dollar — pegged to the U.S. dollar since 1983 at a rate of 7.80 Hong Kong dollars — has risen sharply against the U.S. dollar whenever speculation has boiled over an imminent upward revaluation of the yuan.

Mr. Yam denied that Hong Kong’s new policy signaled China soon would revalue the yuan.

“I have no inside information on what the People’s Bank of China may or may not do concerning the reform of the exchange-rate system for the renminbi,” he said.

The United States has been stepping up pressure on China to revalue its currency, which critics say is causing the U.S. trade deficit to balloon.

China has promised to loosen foreign-exchange restrictions but has given no timetable. On Tuesday, China’s central bank governor, Zhou Xiaochuan, said no one should expect quick action.

“Our measures will only come out after we have done a good feasibility study,” Mr. Zhou said.

The Hong Kong Monetary Authority said the shift to the lower limit will be achieved in a gradual manner over the next five weeks by moving the exchange rate by 100 pips — or one Hong Kong cent — every Monday, starting with 7.81 Hong Kong dollars to the U.S. dollar next Monday until it reaches 7.85 Hong Kong dollars on June 20.

This is the first time since the 1997-98 Asian financial crisis that the monetary authority has made a significant change to its Currency Board system of a pegged exchange rate.

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