The China Quarterly

Research Report

Not All Currency Traders Believe in Unfettered Free Markets: Currency Speculation and Market Intervention in Hong Kong a

Leong H.  Liew  and Harry X.  Wu 


Expectations and beliefs are important forces that can influence financial markets. Using results from a survey, this article examines the beliefs of currency traders in Hong Kong's financial institutions regarding the RMB and HK$/US$ pegs. In particular, it examines the attitudes of these currency traders towards the intervention by the Hong Kong Monetary Authority (HKMA) in Hong Kong's stock and futures markets to defend the HK$/US$ peg during the Asian crisis in 1998. Contrary to expectation, not all currency traders in Hong Kong were diehard devotees of the free market and more were in support of the intervention than against. Degree of identification with Hong Kong was found to be important, influencing attitudes towards government intervention. An inference from the survey is that the intervention was popular with Hong Kong residents and that future intervention by the HKMA is likely if faced with similar speculative attacks on the HK$.


a The authors wish to thank Fu Lei and Lam Chui Sing for assistance in carrying out the survey and Professor Tsang Shu Ki and Dr. John Lee for advice and suggestions. Financial support from the Australian Research Council is gratefully acknowledged.