ABSTRACT
The latest Country Report on the People's Republic of China — Special Administrative
Region (SAR) published by the International Monetary Fund (IMF, 2002b, 3) describes
the growing ties between Hong Kong and mainland China since Hong Kong's return
to China's sovereignty this way:
Integration between the two economies has deepened, notwithstanding the Asian crisis:
economic activities are integrating across the border; and Hong Kong SAR business has
currencies act like a strong barrier to trade (see Andrew Rose, in press, for an appraisal
of the central estimates of the monetary union effect on trade). This chapter discusses
how best to achieve the monetary unification of China with the purpose not only to
strengthen internal trade and hence economic growth (see Frankel and Romer 1999;
outside world. Achieving monetary unification of China without continuing to peg to
the U.S. dollar would also meet one of the essential prerequisites for a wider monetary
union on the continent of East Asia down the road.
