CAMBRIDGE, England -- Oh dear, oh dear! The International Monetary Fund supports the Hong Kong dollar's peg to the dollar. In Hong Kong recently, a senior representative of the IMF applauded Hong Kong's decision not to break its fixed link to the greenback, saying that the IMF believes that "the peg is good for Hong Kong and we (the IMF) strongly support it.
If I was Anthony Leung, Hong Kong's finance secretary, I would be very worried. This is the IMF, of course, that used to "support" the dollarization of the Argentine peso. And look what happened to that. Some of us think that the IMF was at least partly to blame for the 1997 Asian financial crisis for supporting the exchange rates of the Asian economies long after it was clear that they were out of line with economic reality.
The IMF manages the largest fund of foreign exchange in the world, supplemented by massive credit lines. If the IMF takes a position, it can support it with those funds; so the privates sector around the world watches out for what the IMF is doing or saying in the expectation that its position will be backed up.
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