But I have to confess that they will not be exciting to those who advocate quick fixes - and in particular to the small minority who believe that something more spectacular, such as depegging or repegging the Hong Kong dollar, is the panacea for all our problems. In the last part of this talk I shall devote some time to this question, which has received some attention in the past few weeks, with the aim of explaining why, in my view, tinkering with the Link is not a solution. Unstable times Let me first, however, offer some comments on the environment that we now find ourselves in. Internationally, prior to the tragic events of September 11th, there were already signs that a global slowdown was either imminent or already in progress, although it was not clear quite how long or how severe the slowdown would be. September 11th, and its aftermath, has not made the answers to these questions any clearer, but it has left no doubt that the deterioration will be sharper, or that the subsequent recovery will take longer. A number of factors in connection with September 11th are at play. Some have immediate effects that are to a certain extent quantifiable: the physical damage caused by the atrocity; the cost - in additional security and insurance, lost revenue, lost jobs - to the airline and tourist industries; the blow to markets worldwide.
And how far, in any case, would we be able to avoid importing US monetary policy even in the absence of the Link? The experience elsewhere in the region does not give ground for much optimism. The third question is how far the Link is fuelling deflation, and how far this is detrimental to our economy. Internal price deflation is indeed a part - and a necessary part - of the process of adjustment imposed on the economy under the Link when there is a fall off in external demand. It is also, incidentally, a feature of our longer-term economic integration with the Mainland of China. It is the counterpart of currency depreciation under a floating regime, except that the adjustments that it forces to take place tend to involve less overshooting, less instability, and more lasting restructuring. Price deflation brings pain to those who see the value of their assets shrink dramatically, and, as we know, there are many in Hong Kong who are, sadly, in this position. But there are many more who have seen their purchasing power increase, as prices for the whole range of goods and services steadily decline. And the effect, equivalent to that of devaluation, on adding to the attraction of Hong Kong as a regional centre, and as a destination for tourists, can only be positive. The concern comes when price deflation, as part of the adjustment process under the Link, turns into the kind of spiralling deflation that inhibits investment and fuels recession.