The role of entrepôt trade in the choice of a nominal anchor for Hong Kong

This paper adds a new perspective to the literature of monetary standard by establishing a link between re-exports and the choice of nominal anchor. The model developed is applied to address the controversy over the US dollar versus the renminbi as the nominal anchor for Hong Kong, in the context of its considerable amount of entrepot trade with the US and China. It is found that the distinct trade structure of the US-Hong Kong-China triangle significantly reduces Hong Kong's opportunity cost of choosing between the two currencies, its nominal anchor. (DSE/DÜI)