Conclusion - lessons from the 1990s Allow me to set my concluding remarks in the contest of the specific question posed for this panel, namely "Fix versus float - what have we learned from the 1990s?" My answer falls into two parts. First, the 1990s served to confirm what had already become apparent from our experience with a currency board in the 1980s, namely that a currency board can be a viable and, arguably, optimal regime for certain types of economy, but not all. The necessary conditions for success include sufficiently flexible costs and prices, a sound banking system, adequate fiscal discipline and the requisite foreign exchange reserves to back the monetary base, preferably free of other encumbrance. Not all these desiderata were satisfied in one instance of a 1990s' currency board, which has since passed into history. The second lesson concerns the novel feature to emerge late in the 1990s and persist through to the current decade - namely deflation. Society globally has been re-learning how to live with this, after a gap of a lifetime. It seems perfectly possible to live with modest deflation, as our ancestors did, once you have adapted to it. We are reasonably confident that the US economy, to whose monetary stance we in Hong Kong are tied, will not develop in such a way as to make our problem - if that is indeed what it is - any worse.
While a floating regime plainly provides greater flexibility to attempt to influence the price level (although such attempts may not always succeed), Hong Kong sees no reason to abandon its monetary regime, which has served the economy well for almost twenty years. 4  BIS Review 38/2002  Source: International historical statistics: Europe 1750-1993 / B. R. Mitchell, London: Macmillan Reference; New York, N.Y.: Stockton Press, 1998  BIS Review 38/2002  5