HK/China importing US monetary policy...
With HK pegging the HKD (and China with the Yuan) to the USD, many say that they are effectively importing US monetary policy. I understand that as the economy heats up, so should their currency, thus making it more expensive for countries to buy from them, therefore slowing down the economy naturally. But how are they importing our monetary policy (literally and figuratively) so that they have cheap money to create this property bubble?
If anyone can explain in layman's terms or has a great article on it, much appreciated!
Thanks
Hypothetical numbers:
USD is worth 1 HKD.
Fed raises interest rates so that holding e.g. US bonds is worth twice as much. Now USD would be worth 2 HKD.
Since HK central bank pegs to USD, they need to raise interest rates as well, to maintain 1 USD = 1 HKD.
And vice versa. Hope it helps.
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