Integration in the Global Economy
New Horizons in Money and Finance series
Edited by Suthiphand Chirathivat, Emil-Maria Claassen and Jürgen Schroeder
Chapter 3: One country, two monetary systems: Hong Kong and China
Shu-ki Tsang 3.1 INTRODUCTION One country, two monetary systems, or multiple monetary systems, has a number of precedents in China. The country had this during the civil wars of the 1930s and 1940s. Even communist occupied areas had their own (temporary) currencies, as these pockets of land were separated by nationalist armies. Anyway, the currencies were mostly short-lived, and were later unified by the renminbi in 1948–49 (Wu, 1998). The foreign exchange certificates (FECs), to be used exclusively by foreigners inside China before they were abolished by the reforms of 1994, could also be regarded as a pseudo-currency, despite the fact that they had a parity value with the renminbi. In the development of the four special economic zones (SEZs) in the 1980s, there were also discussions of setting up an SEZ currency (Chan and Tsang, 1985). The author, for one, was supportive of such an idea, along with other SEZ officials and scholars, but nothing emerged at the end of the day. At present, China actually has ‘one country, three currencies’; the renminbi, the Hong Kong dollar, and the pataca in Macau (which has continued to circulate after Macau became the second special administrative region (SAR) of China in 1999, after Hong Kong in 1997). Of course, Macau has been Hong Kong ‘dollarized’ to a marked extent for a long time, despite its history as a Portuguese colony. But you can still use the pataca in Macau today (which is pegged to the Hong Kong dollar at the...
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