This may be a scandalous misrepresentation of the true state of affairs, but there are many readers who would, I am sure, have sensed a grain of truth there. Another cause of possible scepticism over the euro relates to what I would like to call popular acceptability. Let me explain what it is. No one has yet seen the euro in the form of cash. From Hong Kong we cannot witness as closely as you can here in Euroland the extent to which the euro has already become part of economic life. The separate national currencies are still quoted in Hong Kong and any traveller knows that he can only take those and not the euro in banknote form on his journey. There is a feeling that, whatever the law says, the euro will not really have arrived until it is there in your pocket. The sceptics will go on to suggest that poor performance of the euro to date, coupled with nationalistic resentment of the imminent loss of one’s own banknotes - to many an emotive symbol of national identity and sovereignty - might yet cause a wave of popular opposition to the euro at the eleventh hour. I should stress that this may not be a widely held viewpoint, and most international businessmen and bankers have long since discarded the national currencies from their minds and books in favour of the euro. But it is possible for just a few vocal doubters to have a disproportionate effect on the overall mood.
One lesson learned from the experience of the Asian financial turmoil is that if we wish to reduce the vulnerability of the small and open emerging markets in Asia to international finance we need, among other things, to build bigger markets. One way of achieving this, if not the only way, is to follow the example of Euroland and go for some form of currency union. Although the Euroland type of pre-conditions for currency union are far from being satisfied in Asia at present, with so much diversity and fragmentation in the geography, culture, stages of development and policies, this is an option that Asia can ill afford to ignore in the long run. The experience of Euroland operating with the euro is therefore something that should be watched in Asia, and is being watched in the HKMA, with keen, supportive interest. Meanwhile, one way of reducing the short-term vulnerability of small and open markets in Asia to the destabilising influence of international finance, while continuing to benefit from it, is perhaps to promote the greater and prudent use of foreign currencies in financial market activities. This is not an advertisement for “dollarisation” - quite the opposite in fact. It is a suggestion for consolidating the position of national currencies by sparing them from certain extraneous influences. This is particularly relevant to Hong Kong as an international financial centre where non-domestic financial business and movements in portfolio capital unrelated to economic developments intrinsic to Hong Kong are abundant.