Currency Substitution: The Use of Hong Kong Dollars in Southern China

Cheung, Kui Yin; Fan, Chengze Simon

doi:2002.17.3.596

The Journal of Economic Integration 2002 September;17(3) :596-607.
DOI: https://doi.org/10.11130/jei.2002.17.3.596

Currency Substitution: The Use of Hong Kong Dollars in Southern China

Kui Yin Cheung, Chengze Simon Fan,

Lingnan University

ABSTRACT

This paper studies the circulation of Hong Kong dollars in the Chinese Mainland. It first estimates the amount of Hong Kong dollars circulating in southern China in the last fifteen years. The regression analysis indicates that the growth rate of Hong Kongs foreign direct investment in China and the growth rate of trade volume between Hong Kong and China are some of the main determinants that contribute to the widespread use of Hong Kong dollars in southern China. The difference of real returns between Hong Kong dollar denominated assets and Chinese Renminbi denominated assets, however, has no effect on the amount of Hong Kong dollars circulating in China. JEL Classifications (E41, F36)

Keywords: Currency Substitution | Hong Kong | Hong Kong Dollars