Other pertinent examples might be the United Kingdom's dependence on the euro area, Ireland's dependence on the United Kingdom, Switzerland's 4 links with Germany, and so on. Moreover, many of these other currency pairs have exhibited considerable fluctuations when compared with the stability of the cross rate between the renminbi and the Hong Kong dollar in recent years, indicating that exchange rate variability may not be an obstacle to the continuing expansion of mutually beneficial economic ties. On this evidence there would be no obvious advantage in a closer link between the Hong Kong dollar and renminbi. In our particular case, there is a further crucial consideration: the renminbi is not convertible. There would be little logic in trying formally to fix a fully convertible currency against a non-convertible one. One might argue that the constancy of the HK dollar against the renminbi for the past several years amounts to de facto fixing, but it does at least allow for variation at such time as might be justified – for example, in the light of major or sudden structural shifts such as WTO entry or eventual convertibility. It would not anyway be possible to operate Hong Kong's currency board system by reference to a nonconvertible currency, since the essence of the system, namely continuous convertibility between the HK dollar and the anchor currency, would be denied.
(Article 112) "The Exchange Fund of the Hong Kong Special Administrative Region shall be managed and controlled by the government of the Region, primarily for regulating the value of the Hong Kong dollar." (Article 113) "The Hong Kong Special Administrative Region shall follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product." (Article 107) These stipulations confirm the continuance of the Hong Kong dollar as an independent currency; they confirm that the Exchange Fund is available to regulate the exchange rate; they rule out the use of exchange controls; and they provide some comfort that deficit fiscal financing should not attain a scale that would pose a serious threat to monetary stability. Choice of regime But within these parameters the exact monetary arrangements are not prescribed. We have chosen to operate a currency board with a fixed rate against the US dollar. I have recently written and spoken at  2  BIS Review 31/2002  2  some length on the rationale behind this choice and do not intend to repeat all of that today. But let me just reiterate one of my principal contentions – namely that monetary policy, which includes exchange rate policy, cannot determine an economy's competitiveness outside the relatively short term.