Social and Behavioral Sciences Commons^™

Do China And Hong Kong Constitute An Optimum Currency Area?, Yue Ma, Shu Ki Tsang

CAPS Working Paper Series

After the political unification of Hong Kong with China, Hong Kong is supposed to function as a separate economic entity under the framework of "one country, two systems". However, the increasingly close ties between the two economices have raised the possibility of full economic integration, and even of monetary union as the Chinese currency progresses towards full convertibility. This paper employs the theory of optimum currency area (OCA) and adopts recently developed techniques to test whether China and Hong Kong constitute an OCA. The empirical findings based on disaggregated historical data are overwhelmingly negative. Other considerations also point to a …