Non-Exchange Rate Adjustments in the Asian Crisis: The People's Republic of China and Hong Kong

Most Asian economies had their currencies depreciated visa-vis the U.S. dollar during the recent financial crisis. The People's Republic of China and Hong Kong, however, tried hard to maintain the exchange value of the reminbi and the Hong Kong dollar. As a result, their experience and adjustments in the crisis were quite different from their neighbours. This paper discusses the main experience and policy responses in the two economies. While other Asian economies suffered the consequences of financial fragility, the Chinese financial system is still very much closed and has a lot to learn from others in the crisis. On the other hand, Hong Kong demonstrates how a liberal and well managed financial system could be subjected to major financial shocks, especially with incorrect policy responses.