Hong Kong is an excellent place to bank. One of the best in the world, in my opinion. Why? Because the banks are strong, stable, innovative, and well-capitalized [and account holders] are free to choose what currency to accept (and save), whether HK dollars, US dollars, Chinese Yuan, gold, or anything else.
So writes Simon Black (sovereignman.com) in edited excerpts from his original article* entitled Is there a ‘best’ currency to hold right now?.
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Black goes on to say in further edited, and in some cases paraphrased, excerpts:
I have far fewer concerns about a bank going under in Hong Kong than I do in the U.S. or Europe and in Hong Kong, with just a few clicks or a phone call, I can move money into gold or any number of currencies.
To guard against this constant loss of purchasing power, many Hong Kong’s residents are converting their savings to Chinese Yuan. While the Chinese Yuan closely shadows the US dollar, it has steadily appreciated and is perceived to have significant future upside should the Chinese ever allow it to appreciate more quickly.
US monetary inflation makes it inevitable that the Hong Kong Monetary Authority will come up with some sort of a scheme to either peg the Hong Kong dollar to the Yuan (rather than the US dollar), or perhaps even replace the Hong Kong dollar with the Yuan altogether.
This would be a HUGELY popular move. Hong Kong is one of the few places on Earth with a net savings rate; the loan to deposit ratio its banking system, for example, stood at 81.7% at the end of March [of 2011], meaning there are only 81.7 cents on the dollar lent out in Hong Kong for every $1 on deposit in the banks.
Consequently, savers would love to see the Hong Kong dollar revalued higher by pegging it to the Chinese Yuan at the current Yuan/dollar rate of 6.50, rather than the current HK dollar/US dollar peg of 7.80….
If you have significant expenses to meet in US dollars you may be uncomfortable taking on currency risk by parking your money in a more volatile foreign currency such as the Aussie dollar or Canadian dollar…but by holding savings in Hong Kong dollars, though, you will have minimal downside risk if the HKMA keep the status quo and maintains the US dollar peg. Your Hong Kong dollars will always buy the same amount of US dollars they buy today but, on the other hand, you will have a free “call option” in case the Hong Kong dollar is revalued higher. It’s a bit like a “heads you win; tails you don’t lose” situation. Source: http://www.sovereignman.com/expat/its-heads-you-win-tails-you-dont-lose-with-this-currency-4389/]
It’s quite easy to open an account in US dollars (USD) in Hong Kong [but there are pros and cons]. [On one hand,] the continued expansion of the Federal Reserve’s balance sheet coupled with excessive spending habits of the U.S. government, makes the USD an increasingly worthless piece of paper in the long run. The flip side to this view, though, is that historically, the USD has been viewed as a safe haven currency. When things get bumpy in financial markets, financial institutions and foreigners tend to hold dollars. It’s bizarre to view the biggest debtor in the history of the world as safe, yet this is due to a few factors– the dollar’s free-floating convertibility; the ridiculous size of the US dollar (and bond market) which makes for easy liquidity; and the US government’s guarantee to never default (by simply printing more).
Hong Kong banks also offer a plethora of other currency options – the Singapore dollar, Australian dollar, Korean won, Canadian dollar, in some cases the Norwegian krone – of export-oriented countries with healthier balance sheets. They have better fundamentals and a much brighter future.
In a sane, rational world, the above currencies are the obvious choice and still make sense with a much longer-term view but, unfortunately, we don’t live in a sane, rational world, and as such, the choice is a constant tug-of-war between the deeply flawed safe haven status of the US, and these smaller, healthier economies.[Given the above,]…the foreign exchange markets are extremely volatile. Trillions of dollars move in and out of currencies each day depending on the prevailing rumor. One day the dollar is surging, the next day it’s tanking. The euro and pound are getting beaten around like some third world peso. It’s embarrassing, really… this is supposed to be the pinnacle of finance.
One compromise that is worth considering is the Hong Kong dollar (HKD). Pegged at 7.80 HKD per USD for several decades now, holding HKD is essentially the same as holding USD. There is a very narrow band of volatility, but it’s a tiny rounding error.
If the USD’s safe haven sentiment holds, the HKD will be a good place to be as it will appreciate against other currencies and commodities as well. If the USD slides into oblivion, you can safely bet that the Hong Kong (i.e. Chinese) government will make a one-off revaluation of the peg.
[As was mentioned in the other article noted above, your Hong Kong dollars will always buy the same amount of US dollars they buy today but, on the other hand, you will have a free “call option” in case the Hong Kong dollar is revalued higher. It’s a bit like a “heads you win; tails you don’t lose” situation.]
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.sovereignman.com/finance/is-there-a-best-currency-to-hold-right-now-5830/ (© Copyright 2012 Sovereign Man, All rights reserved)
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