He writes, obviously failing to understand the power of markets over government men:
I’m still in Hong Kong, and there’s a curious discussion here about the upward collapse of Switzerland’s peg to the euro. You see, by the numbers Switzerland’s monetary situation pre-collapse and Hong Kong’s now look remarkably similar. Both were pegged to the currency of a much larger economy; in both cases the monetary authorities had accumulated huge reserves. Both found themselves at the mercy of that larger economy’s monetary policies — much obsession here over when the Fed will raise rates, much discussion of how low rates and QE in the US fed housing prices. So is the Hong Kong dollar at risk of a franc-like event?
No, it isn’t. There’s not a hint of pressure to drop the currency board.
I am saving this juicy Krugman quote for future reference, that is, for when the peg breaks.
-RW
Well of course there's not a hint of pressure to drop the currency board. If there was, speculators would punish HK severely. Was there any hint from the SNB about dropping the peg? On the contrary, they reaffirmed it three days before dropping it in the middle of the New-York night. Anybody who still trusts central bank forward statements is pulling pennies from underneath a steamroller.
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