This might involve higher rather than lower interest rates because of a risk premium, plus greater uncertainty. Before moving on from the subject of competitiveness, let me leave you with a couple of thoughts. If Hong Kong has, in some underlying sense, been suffering from severe uncompetitiveness, how does one explain the continuing strength of the trade and current account performance...  … and the fact that the pace of recession in Hong Kong over the last two years has not been significantly different from that in a number of other economies in the region? 6  BIS Review 17/2002  I am drawn to conclude that the criticisms of the peg on competitiveness grounds do not stand up too well under scrutiny. Even if the foregoing analysis and discussion does not prove unequivocally that fixing is superior to floating, it does challenge the contention that perceived problems of competitiveness would dissipate if only we had a floating exchange rate. Living with deflation Let me turn now to the other focus of criticism of the monetary regime that I mentioned earlier, namely deflation. There are four main factors which have been contributing to falling prices in Hong Kong. First, there is the state of the global economy. A combination of recession and remarkable success in taming inflation in recent years have left policy makers in several countries facing the unusual situation of deflation. Hong Kong has not been alone, although the process has perhaps been more prolonged here than in many other places.
But it is clear that they are exploitation of smaller countries by bigger nations with more economic clout and technological advancement. These practices still continue to the detriment of the public in smaller nations. Such resentment comes not from the physical harm or destruction of personal properties, but from the feeling that they are living in an unjust world, where the rules favour big nations at the cost of smaller nations. I do not have any solution to this problem, and I do not foresee any elected leader, whose rise to office have been supported by influential business sectors, to make a move on this issue. I only hope that an internationally neutral body such as the United Nations which is the hope and voice of all nations, big and small, would look at the issue of economic exploitation of bigger nation on smaller nations and set appropriate rules of the game to protect the interests of smaller nations. This would help people feel that they are living in a just and fair world. Thank you for your attention. 2  BIS Review 29/2005