A Study On Monetary Integration Of RMB And Hong Kong Dollar

With the increasingly co-operation of business and trade between Mainland and Hong Kong, the uncertainty of exchange rate risks and the tremendous transaction costs are attributed to the difference in exchange rate. They are called the resource wastes which make against the economic development of these two regions. Therefore, according to the theory of optimum currency areas and the experience of European Union , it is proposed Mainland and Hong Kong make up of common currency areas to eliminate the exchange rate risks and reduce the transaction costs.After the cost-revenue analysis of the establishment of the common currency areas in these two regions, we find that the revenue is significantly larger than the cost, driven by the profit; both of Hong Kong and Mainland have the motivation to establish such common currency areas. According to the theory of optimum currency areas, we make a feasibility of such monetary integration, and then our conclusion is that the frequent economic trading, investment and financial deals between these two regions make a realistic foundation. At the same time, using the criteria converge, there are some discrepancies in many aspects between Mainland and Hong Kong. However these discrepancies are stepping down which are in favor of this monetary integration. In the aspect of the arrangement of this monetary integration procedure and operation of monetary policy, we use the reference of the European Union's experience to make a direction for the monetary integration between these two regions. To sum up, the monetary integration of RMB and Hong Kong dollar will become the unchangeable trend.