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3-3 - holdings of foreign currency Fixed interest rates...

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Hong Kong and Singapore NIC/NIE Both are city states – no rural sector Both are British colonies Both are ports Both have strong, open financial systems Both become centers of entrepot activity Hong Kong Since 1997 part of China HK is closest thing to laissez-faire in world Government provides considerable physical and social infrastructure But very little intervention No large productive state enterprises, low and uniform taxes, no trade restrictions Boost in industrialization after Chinese Civil War Mostly in textile and apparel sectors and other light manufacturing HK had trading firms with connection to world market Bouts of financial uncertainties and crises Early 1980s?, adopted currency board Currency board – domestic money supply determined on a 1-to-1 basis by the government’s
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Unformatted text preview: holdings of foreign currency Fixed interest rates? Does not have power over creation of money Nominal exchange rate is fixed, price adjustments must be reflected in domestic prices Some price stickiness, so not exactly perfect MFA – multilateral fiber arrangement Bilateral quotas for apparel Graph: supply and demand curve with quota Auctioned off the quotas Entire quota rent ends up as government revenue As HK developed, wages rose Then 1978-79 China began reforms Actual production activities that used to happen in HK moves into Southern China Today, not much manufacturing activity in HK anymore Social problem, outsourced millions of jobs to China HK acts as headquarters Big problem is pollution from China...
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