USA's ZOG is behind 'secession' plot in Hong Kong...., and Hong Kong could peg to land.... ?
By Kent Ewing
HONG KONG - Fourteen years after this city's handover from British to Chinese rule, the United States has launched a secret plot to encourage Hong Kong to declare independence. Ultimately, the sinister aim is to undermine China's rise on the world stage and reassert US dominance in Asia.
That should have been last week's top news story around the globe, according to Hao Tiechuan, director general of the Department of Publicity, Culture and Sports of the Central Government's Liaison Office in Hong Kong. Then again, this is the same senior official who recently urged the people of Hong Kong to adopt a Beijing-prescribed program of national education in its schools because "brainwashing is an international convention".
In other words, anything Hao says or does should be regarded as suspect. Indeed, it is astonishing that he still has a job after all of his embarrassing miscues.
The worry, however, is that his clumsy, insuppressible honesty provides a window into official thinking behind the scenes. Otherwise, why does he hold such an important position? And why hasn't he been summarily sacked for his loose tongue?
Hao's comments - which, remarkably, he posted (and then deleted) last Wednesday on Sina Weibo, the Chinese version of Twitter - followed on the heels of an unusually emotional outburst about US meddling in Hong Kong affairs from the Commissioner's Office of China's Foreign Ministry in Hong Kong.
Responding to WikiLeaks' release of nearly 1,000 unedited US State Department cables about Hong Kong, an office spokesman accused American diplomats of contravening international law through their brazen interference in Hong Kong affairs.
"The conduct of the US has gone beyond the functions that are stated in the Vienna Convention on Consular Relations and other international laws," the official China Daily quoted the unidentified spokesman as saying. "We have justification to be concerned and discontented. We demand that the US stop erring."
A China Daily commentary, written by staff writer Bob Lee and published in the paper's Hong Kong edition, added fuel to the fire.
"In the 14 years since the handover of Hong Kong to its motherland," Lee wrote, "there has been much speculation about 'a second governing body' running Hong Kong. Now, thanks to the release of unedited US State Department cables by WikiLeaks/CIA ... the whole truth has come out in the wash."
Lee then gives the address of this anti-Beijing "task force" as 26 Garden Road, where the US consulate is located.
Lee and the Foreign Ministry's local office are upset because the cables show American diplomats have engaged in regular dialogue with Hong Kong political leaders and judges who sit on the city's Court of Final Appeal. Lee even goes on to name a Hong Kong "Gang of Four" - former chief secretary Anson Chan Fang On-sang, founder of the Democratic Party Martin Lee Chu-ming, media tycoon Jimmy Lai Chee-ying and Cardinal Joseph Zen Ze-kiun, formerly the Vatican's Bishop of Hong Kong - whom he says are the most welcome and regular invitees to consular luncheons and meetings and thus clearly conspirators in the American plot to stoke trouble here.
It seems strange, however, that a local office and a China Daily commentator should react so stridently to the cables while officials in Beijing have yet to comment on them - probably because the "secrets" they reveal don't add up to much.
The cables cover a wide variety of topics - from education to water supplies to speculation about who might become the city's next chief executive - but they contain nothing that is damning or even very surprising. Surely, Beijing cannot be taken aback by the news that present US Consul General Stephen Young and his underlings hold occasional meetings with Hong Kong's movers and shakers.
In the most interesting revelation contained in the cables, Justice Kemal Bokhary is quoted as saying that he and the four other judges on the Court of Final Appeal, "seriously considered resignation" after a landmark court ruling was overturned in 1999 by the Standing Committee of the National People's Congress (NPC).
The court had ruled that mainland children born before their parents became permanent residents of Hong Kong were entitled to right of abode in the city, triggering fears that a flood of migrants would overwhelm Hong Kong's schools and social welfare system.
According to the cable, dated August 28, 2007, the judges decided against resignation because they "feared they would be replaced by less independent or competent jurists".
While the date of the cable demonstrates that Bokhary was still gnawing on his resentment nearly eight years after the NPC Standing Committee's reversal of the court's judgment, its contents should surprise no one. The five judges were outraged and irate; in effect, the NPC Standing Committee had just stricken the all-important word "Final" from the court's title.
Another cable recounts remarks made in 2005 by chief executive Donald Tsang Yang-kuen to then US consul general James Cunningham about the disadvantages of implementing a fully democratic political system in Hong Kong, where more than half of a population numbering 7.1 million pays no tax.
"The great fear in Hong Kong," the chief executive is quoted as saying, "is not taxation without representation, but representation without taxation, in which the non-taxpaying majority would dictate to the taxpayers."
In another cable, a prominent local political commentator, Albert Cheng King-hon, criticizes as "incompetent" then chief secretary Henry Tang Ying-yen, who stepped down from his position last week to mount a campaign to be the city's next chief executive; Tang is considered Beijing's favored candidate to succeed Tsang and thus the frontrunner at this point.
Yet another reveals the worries of James To Kun-sun of the Democratic Party that Beijing has infiltrated the party with spies.
All this may be mildly titillating, but it is hardly big news and certainly nothing to go diplomatically apoplectic about.
If the reaction to the WikiLeaks release by the Foreign Ministry's local office rattled American consular officials and those named in the cables, Hao's cyber rant left them positively dumbfounded.
"Many mainlanders do not know that forces like the US have been attempting to use Hong Kong as a bridgehead to contain the rise of China," Hao wrote on Weibo. "They don't hope for China to attain democracy and the rule of law. They just want China to fall into turmoil."
Hao went on to accuse current US consul general Young, formerly director of the American Institute of Taiwan, of using his bloated staff of several hundred employees to foment a secessionist movement in Hong Kong.
"What are they doing in such a tiny place as Hong Kong?" Hao fumed. "They intend to stir up trouble in an attempt to secede the city from China. What kind of person is US consul general Stephen Young? He is an old hand who engaged in instigating Taiwanese independence and secession in eastern European countries."
While crazy posts like this are standard fare in the Chinese blogosphere and elsewhere on the Internet, they don't usually come from senior officials carrying sensitive diplomatic portfolios. Yes, they were deleted, but how could a person in Hao's position have posted them in the first place?
Clearly, Hao needs to go. He is an embarrassment who is only doing damage to the central government's reputation in Hong Kong and beyond.
More broadly, Chinese officials - among whom maybe Hao stands as a lonely extreme - need to rise above their increasingly inexplicable paranoia about Hong Kong and the West. It is safe to say that diplomats stationed at Chinese embassies and consulates the world over are also talking to local leaders about the important issues of the day - as they should be - without being accused of contravening international law.
These 960 cables show that's all American officials are doing here. If there are more sinister things going on, they are not represented in the documents released by WikiLeaks/CIA so far....LOL
Hong Kong is part of China now. That's not going to change, and a vast majority of the people here - including local pan-democratic politicians and visiting American diplomats - do not want it to change.
Hong Kong needs China. The US needs China. The world needs China.
There's less and less to be paranoid about....LOL
.
By Kent Ewing
HONG KONG - Fourteen years after this city's handover from British to Chinese rule, the United States has launched a secret plot to encourage Hong Kong to declare independence. Ultimately, the sinister aim is to undermine China's rise on the world stage and reassert US dominance in Asia.
That should have been last week's top news story around the globe, according to Hao Tiechuan, director general of the Department of Publicity, Culture and Sports of the Central Government's Liaison Office in Hong Kong. Then again, this is the same senior official who recently urged the people of Hong Kong to adopt a Beijing-prescribed program of national education in its schools because "brainwashing is an international convention".
In other words, anything Hao says or does should be regarded as suspect. Indeed, it is astonishing that he still has a job after all of his embarrassing miscues.
The worry, however, is that his clumsy, insuppressible honesty provides a window into official thinking behind the scenes. Otherwise, why does he hold such an important position? And why hasn't he been summarily sacked for his loose tongue?
Hao's comments - which, remarkably, he posted (and then deleted) last Wednesday on Sina Weibo, the Chinese version of Twitter - followed on the heels of an unusually emotional outburst about US meddling in Hong Kong affairs from the Commissioner's Office of China's Foreign Ministry in Hong Kong.
Responding to WikiLeaks' release of nearly 1,000 unedited US State Department cables about Hong Kong, an office spokesman accused American diplomats of contravening international law through their brazen interference in Hong Kong affairs.
"The conduct of the US has gone beyond the functions that are stated in the Vienna Convention on Consular Relations and other international laws," the official China Daily quoted the unidentified spokesman as saying. "We have justification to be concerned and discontented. We demand that the US stop erring."
A China Daily commentary, written by staff writer Bob Lee and published in the paper's Hong Kong edition, added fuel to the fire.
"In the 14 years since the handover of Hong Kong to its motherland," Lee wrote, "there has been much speculation about 'a second governing body' running Hong Kong. Now, thanks to the release of unedited US State Department cables by WikiLeaks/CIA ... the whole truth has come out in the wash."
Lee then gives the address of this anti-Beijing "task force" as 26 Garden Road, where the US consulate is located.
Lee and the Foreign Ministry's local office are upset because the cables show American diplomats have engaged in regular dialogue with Hong Kong political leaders and judges who sit on the city's Court of Final Appeal. Lee even goes on to name a Hong Kong "Gang of Four" - former chief secretary Anson Chan Fang On-sang, founder of the Democratic Party Martin Lee Chu-ming, media tycoon Jimmy Lai Chee-ying and Cardinal Joseph Zen Ze-kiun, formerly the Vatican's Bishop of Hong Kong - whom he says are the most welcome and regular invitees to consular luncheons and meetings and thus clearly conspirators in the American plot to stoke trouble here.
It seems strange, however, that a local office and a China Daily commentator should react so stridently to the cables while officials in Beijing have yet to comment on them - probably because the "secrets" they reveal don't add up to much.
The cables cover a wide variety of topics - from education to water supplies to speculation about who might become the city's next chief executive - but they contain nothing that is damning or even very surprising. Surely, Beijing cannot be taken aback by the news that present US Consul General Stephen Young and his underlings hold occasional meetings with Hong Kong's movers and shakers.
In the most interesting revelation contained in the cables, Justice Kemal Bokhary is quoted as saying that he and the four other judges on the Court of Final Appeal, "seriously considered resignation" after a landmark court ruling was overturned in 1999 by the Standing Committee of the National People's Congress (NPC).
The court had ruled that mainland children born before their parents became permanent residents of Hong Kong were entitled to right of abode in the city, triggering fears that a flood of migrants would overwhelm Hong Kong's schools and social welfare system.
According to the cable, dated August 28, 2007, the judges decided against resignation because they "feared they would be replaced by less independent or competent jurists".
While the date of the cable demonstrates that Bokhary was still gnawing on his resentment nearly eight years after the NPC Standing Committee's reversal of the court's judgment, its contents should surprise no one. The five judges were outraged and irate; in effect, the NPC Standing Committee had just stricken the all-important word "Final" from the court's title.
Another cable recounts remarks made in 2005 by chief executive Donald Tsang Yang-kuen to then US consul general James Cunningham about the disadvantages of implementing a fully democratic political system in Hong Kong, where more than half of a population numbering 7.1 million pays no tax.
"The great fear in Hong Kong," the chief executive is quoted as saying, "is not taxation without representation, but representation without taxation, in which the non-taxpaying majority would dictate to the taxpayers."
In another cable, a prominent local political commentator, Albert Cheng King-hon, criticizes as "incompetent" then chief secretary Henry Tang Ying-yen, who stepped down from his position last week to mount a campaign to be the city's next chief executive; Tang is considered Beijing's favored candidate to succeed Tsang and thus the frontrunner at this point.
Yet another reveals the worries of James To Kun-sun of the Democratic Party that Beijing has infiltrated the party with spies.
All this may be mildly titillating, but it is hardly big news and certainly nothing to go diplomatically apoplectic about.
If the reaction to the WikiLeaks release by the Foreign Ministry's local office rattled American consular officials and those named in the cables, Hao's cyber rant left them positively dumbfounded.
"Many mainlanders do not know that forces like the US have been attempting to use Hong Kong as a bridgehead to contain the rise of China," Hao wrote on Weibo. "They don't hope for China to attain democracy and the rule of law. They just want China to fall into turmoil."
Hao went on to accuse current US consul general Young, formerly director of the American Institute of Taiwan, of using his bloated staff of several hundred employees to foment a secessionist movement in Hong Kong.
"What are they doing in such a tiny place as Hong Kong?" Hao fumed. "They intend to stir up trouble in an attempt to secede the city from China. What kind of person is US consul general Stephen Young? He is an old hand who engaged in instigating Taiwanese independence and secession in eastern European countries."
While crazy posts like this are standard fare in the Chinese blogosphere and elsewhere on the Internet, they don't usually come from senior officials carrying sensitive diplomatic portfolios. Yes, they were deleted, but how could a person in Hao's position have posted them in the first place?
Clearly, Hao needs to go. He is an embarrassment who is only doing damage to the central government's reputation in Hong Kong and beyond.
More broadly, Chinese officials - among whom maybe Hao stands as a lonely extreme - need to rise above their increasingly inexplicable paranoia about Hong Kong and the West. It is safe to say that diplomats stationed at Chinese embassies and consulates the world over are also talking to local leaders about the important issues of the day - as they should be - without being accused of contravening international law.
These 960 cables show that's all American officials are doing here. If there are more sinister things going on, they are not represented in the documents released by WikiLeaks/CIA so far....LOL
Hong Kong is part of China now. That's not going to change, and a vast majority of the people here - including local pan-democratic politicians and visiting American diplomats - do not want it to change.
Hong Kong needs China. The US needs China. The world needs China.
There's less and less to be paranoid about....LOL
Hong Kong could peg to land....
By Chris Cook
The discovery of the platypus in Australia created something of a dilemma for zoologists. Some said that as a furry warm-blooded animal the platypus should be classified as a mammal: others held that because the platypus reproduces by laying eggs then it should be classified as a bird or a reptile. The solution was to create a new classification especially for the platypus.
Hong Kong is also in a class of its own as a monetary platypus which uniquely has no Central Bank as a lender of last resort. Supervised by the Hong Kong Monetary Authority, Hong Kong's banks clear payments among themselves "real-time".
Hong Kong is also a fiscal platypus, uniquely gathering a large proportion of government income from the use value of land. Very few countries have used land rental value as a fiscal basis to the same extent as Hong Kong, and those few which have - such as Denmark - have typically levied a local tax on land rental values.
Hong Kong gathered income through the creation and sale of long leases of public land. The resulting "Crown Rentals" collected from property developers had the effect of reducing the amount of taxation to be collected from Hong Kong's entrepreneurial businesses and citizens. However, over the years the amount raised from the sale of long leaseholds has been reduced considerably - to the advantage of developers - through decreasing the discount rate applied in calculating the lease premium.
Evolution
Hong Kong is, like the platypus, an evolutionary oddity, with a track record of rapidly evolving its monetary and fiscal architecture in response to external circumstances. This is due in no small part to an extremely flexible and talented cadre of officials in the relevant policy making institutions.
From 1935 to 1972 the Hong Kong dollar was pegged to sterling through a currency board arrangement, but the US dollar gradually supplanted sterling as a global reserve currency, and in late 1974, after a brief flirtation with a US dollar peg, Hong Kong let the local dollar float against other currencies without any formal intervention.
Since 1983, after a crisis in confidence, the Hong Kong dollar has once again been pegged to the US dollar within the Linked Exchange Rate System (LERS), which has two mirror image - strong side and weak side - defenses against capital inflows and outflows.
Strong side defense at 7.75 HK$: upward pressure on HK$ > Currency Board sells HK$ > monetary base expands > interest rates fall > downward pressure on HK$. Weak side defense at 7.85 HK$: downward pressure on HK$ > Currency Board buys HK$ > monetary base contracts > interest rates rise > upward pressure on HK$.
Decline of the dollar
The US Federal Reserve Bank responded to the credit crisis in 2008 by reducing dollar interest rates to zero, and by printing trillions of dollars and using them to buy financial assets. These monetary policies have had two adverse effects on Hong Kong.
Firstly, risk averse investors - not speculators in search of a transaction profit - have been making financial purchases of commodities using vehicles such as Exchange Traded Funds. These inflation hedgers have perversely caused the very inflation they sought to avoid, and Hong Kong citizens have been particularly hard hit in respect of essentials such as food and energy prices.
Secondly, the low interest rates necessitated by the peg have exacerbated property price inflation. Several international investors take the view that the Hong Kong dollar is overvalued against the US currency by around 30% and are placing major financial bets to that effect. In their view, the question is not whether or not the peg arrangements will be changed, but when; and - the $64 billion question - to what?
Triffin's dilemma
The economist Robert Triffin identified that where a global reserve currency is backed by interest-bearing debt - such as the US dollar, and sterling before that - then the result is that the issuer of that reserve currency will eventually become unsustainably indebted to the rest of the world.
In order for China to become the global reserve currency, and suitable for a Hong Kong currency peg, it would mean that China would not only have to cease its mercantilist export policy but also reverse this into a massive trade deficit.
Such a cosmic shift in Beijing's business model is sufficiently unlikely that the well publicized bet of Bill Ackman's Pershing Square Capital - that the Hong Kong dollar will appreciate and adopt a yuan peg - appears to be an extremely long shot.
But if Ackman's thesis is accepted that the dollar peg is no longer sustainable, what other basis for the currency might there be?
The global tidal wave of money in search of a safe haven has forced the Swiss Franc (CHF) to levels which gravely threaten Swiss exports. The Swiss National Bank recently surprised the financial world by capping the appreciation of the CHF against the euro at a level of 1.20 euros. But the innovation which blew away the speculators was the announcement by the SNB that it would defend the cap simply by creating CHF and exchanging this money for foreign assets (and hence currency) without conventionally backing ("funding") this money with government debt.
The Swiss thereby demonstrated that on the "strong side" they could defend the CHF against appreciation by printing - or even threatening to print - infinite amounts of CHF and exchanging these for foreign assets or currency.
The monetary orthodoxy is that this will cause inflation in Switzerland. This is true only to the extent that the overseas holders of the currency are permitted to buy Swiss assets such as real property and stocks. Overseas holders of CHF do not typically spend them on Swiss domestic consumption to potentially cause retail price inflation.
This unorthodox monetary action by the Swiss blew away the myth that money must necessarily be backed by debt. The truth is that both central and private banks are simply middlemen - credit intermediaries - between people and government. Modern fiat money is backed by the ability to use it to pay taxes, which in most countries are largely levied upon productive people rather than productive assets.
A simple but radical monetary and fiscal evolution for Hong Kong now enters the realm of the adjacent possible: land-based money.
Back to the land
Land backing for bank created money is not a new idea. The remarkable Scottish gambler and adventurer John Law proposed a land-backed currency for Scotland in 1705, based upon central bank credit creation and backed by loans secured against leases.
Unfortunately, when he applied his monetary expertise in France in 1719 he created not only the first recognizably modern central bank - the Banque Royale - but also the first asset price bubble driven by bank credit. The land rights owned by his Mississippi Company over a third of the US land mass were not then worth what they are now, and Law ruined himself and France in the Mississippi Bubble.
The absence of a central bank in Hong Kong opens up the possibility of a more direct - "peer to asset" - approach. As freeholder, the government could declare a new ground rental on the unimproved value of Hong Kong land and then base the Hong Kong dollar on this value simply through the creation and issue of credits redeemable in payment for HK$1.00's worth of rental.
The first fiscal effect of this ground rental would be to reduce speculative development pressure. Secondly, the resulting HK Rental Pool may then be distributed equally to all Hong Kong citizens as a land dividend. The effect of this would be of a net fiscal transfer from those with above average exclusive use of Hong Kong's scarce land to those with below average use.
Finally, under suitable management by service providers and supervision by the Hong Kong Monetary Authority, this new source of HK public credit would be available to finance new infrastructure. Such public investment would increase the ground rental value of the relevant land and enable the public credit to be retired and recycled out of the increase.
This land dividend would reduce the financial pressure on Hong Kong's poorest citizens and would do so through a pre-distribution of future wealth rather than a re-distribution of existing wealth. Properly executed - and Hong Kong's executive are more likely than most to succeed - this fiscal policy should be win/win: the rich would in future receive a smaller share of a larger pie.
The monetary effect of a land-based HK dollar would be of a currency with exchange control hard-wired into it. Overseas holders could exchange the HK dollar for other value with HK residents and businesses, but they would never be able to redeem it against HK rentals unless they resided in Hong Kong.
This simple and radical concept of a land-based Hong Kong dollar would see the evolution of Hong Kong's two monetary and fiscal platypi into a new and resilient 21st century financial animal, still in a class of its own.
By Chris Cook
The discovery of the platypus in Australia created something of a dilemma for zoologists. Some said that as a furry warm-blooded animal the platypus should be classified as a mammal: others held that because the platypus reproduces by laying eggs then it should be classified as a bird or a reptile. The solution was to create a new classification especially for the platypus.
Hong Kong is also in a class of its own as a monetary platypus which uniquely has no Central Bank as a lender of last resort. Supervised by the Hong Kong Monetary Authority, Hong Kong's banks clear payments among themselves "real-time".
Hong Kong is also a fiscal platypus, uniquely gathering a large proportion of government income from the use value of land. Very few countries have used land rental value as a fiscal basis to the same extent as Hong Kong, and those few which have - such as Denmark - have typically levied a local tax on land rental values.
Hong Kong gathered income through the creation and sale of long leases of public land. The resulting "Crown Rentals" collected from property developers had the effect of reducing the amount of taxation to be collected from Hong Kong's entrepreneurial businesses and citizens. However, over the years the amount raised from the sale of long leaseholds has been reduced considerably - to the advantage of developers - through decreasing the discount rate applied in calculating the lease premium.
Evolution
Hong Kong is, like the platypus, an evolutionary oddity, with a track record of rapidly evolving its monetary and fiscal architecture in response to external circumstances. This is due in no small part to an extremely flexible and talented cadre of officials in the relevant policy making institutions.
From 1935 to 1972 the Hong Kong dollar was pegged to sterling through a currency board arrangement, but the US dollar gradually supplanted sterling as a global reserve currency, and in late 1974, after a brief flirtation with a US dollar peg, Hong Kong let the local dollar float against other currencies without any formal intervention.
Since 1983, after a crisis in confidence, the Hong Kong dollar has once again been pegged to the US dollar within the Linked Exchange Rate System (LERS), which has two mirror image - strong side and weak side - defenses against capital inflows and outflows.
Decline of the dollar
The US Federal Reserve Bank responded to the credit crisis in 2008 by reducing dollar interest rates to zero, and by printing trillions of dollars and using them to buy financial assets. These monetary policies have had two adverse effects on Hong Kong.
Firstly, risk averse investors - not speculators in search of a transaction profit - have been making financial purchases of commodities using vehicles such as Exchange Traded Funds. These inflation hedgers have perversely caused the very inflation they sought to avoid, and Hong Kong citizens have been particularly hard hit in respect of essentials such as food and energy prices.
Secondly, the low interest rates necessitated by the peg have exacerbated property price inflation. Several international investors take the view that the Hong Kong dollar is overvalued against the US currency by around 30% and are placing major financial bets to that effect. In their view, the question is not whether or not the peg arrangements will be changed, but when; and - the $64 billion question - to what?
Triffin's dilemma
The economist Robert Triffin identified that where a global reserve currency is backed by interest-bearing debt - such as the US dollar, and sterling before that - then the result is that the issuer of that reserve currency will eventually become unsustainably indebted to the rest of the world.
In order for China to become the global reserve currency, and suitable for a Hong Kong currency peg, it would mean that China would not only have to cease its mercantilist export policy but also reverse this into a massive trade deficit.
Such a cosmic shift in Beijing's business model is sufficiently unlikely that the well publicized bet of Bill Ackman's Pershing Square Capital - that the Hong Kong dollar will appreciate and adopt a yuan peg - appears to be an extremely long shot.
But if Ackman's thesis is accepted that the dollar peg is no longer sustainable, what other basis for the currency might there be?
The global tidal wave of money in search of a safe haven has forced the Swiss Franc (CHF) to levels which gravely threaten Swiss exports. The Swiss National Bank recently surprised the financial world by capping the appreciation of the CHF against the euro at a level of 1.20 euros. But the innovation which blew away the speculators was the announcement by the SNB that it would defend the cap simply by creating CHF and exchanging this money for foreign assets (and hence currency) without conventionally backing ("funding") this money with government debt.
The Swiss thereby demonstrated that on the "strong side" they could defend the CHF against appreciation by printing - or even threatening to print - infinite amounts of CHF and exchanging these for foreign assets or currency.
The monetary orthodoxy is that this will cause inflation in Switzerland. This is true only to the extent that the overseas holders of the currency are permitted to buy Swiss assets such as real property and stocks. Overseas holders of CHF do not typically spend them on Swiss domestic consumption to potentially cause retail price inflation.
This unorthodox monetary action by the Swiss blew away the myth that money must necessarily be backed by debt. The truth is that both central and private banks are simply middlemen - credit intermediaries - between people and government. Modern fiat money is backed by the ability to use it to pay taxes, which in most countries are largely levied upon productive people rather than productive assets.
A simple but radical monetary and fiscal evolution for Hong Kong now enters the realm of the adjacent possible: land-based money.
Back to the land
Land backing for bank created money is not a new idea. The remarkable Scottish gambler and adventurer John Law proposed a land-backed currency for Scotland in 1705, based upon central bank credit creation and backed by loans secured against leases.
Unfortunately, when he applied his monetary expertise in France in 1719 he created not only the first recognizably modern central bank - the Banque Royale - but also the first asset price bubble driven by bank credit. The land rights owned by his Mississippi Company over a third of the US land mass were not then worth what they are now, and Law ruined himself and France in the Mississippi Bubble.
The absence of a central bank in Hong Kong opens up the possibility of a more direct - "peer to asset" - approach. As freeholder, the government could declare a new ground rental on the unimproved value of Hong Kong land and then base the Hong Kong dollar on this value simply through the creation and issue of credits redeemable in payment for HK$1.00's worth of rental.
The first fiscal effect of this ground rental would be to reduce speculative development pressure. Secondly, the resulting HK Rental Pool may then be distributed equally to all Hong Kong citizens as a land dividend. The effect of this would be of a net fiscal transfer from those with above average exclusive use of Hong Kong's scarce land to those with below average use.
Finally, under suitable management by service providers and supervision by the Hong Kong Monetary Authority, this new source of HK public credit would be available to finance new infrastructure. Such public investment would increase the ground rental value of the relevant land and enable the public credit to be retired and recycled out of the increase.
This land dividend would reduce the financial pressure on Hong Kong's poorest citizens and would do so through a pre-distribution of future wealth rather than a re-distribution of existing wealth. Properly executed - and Hong Kong's executive are more likely than most to succeed - this fiscal policy should be win/win: the rich would in future receive a smaller share of a larger pie.
The monetary effect of a land-based HK dollar would be of a currency with exchange control hard-wired into it. Overseas holders could exchange the HK dollar for other value with HK residents and businesses, but they would never be able to redeem it against HK rentals unless they resided in Hong Kong.
This simple and radical concept of a land-based Hong Kong dollar would see the evolution of Hong Kong's two monetary and fiscal platypi into a new and resilient 21st century financial animal, still in a class of its own.
