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Currency Envy: My money is bigger than yours

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Currency Envy: My money is bigger than yours

SINCE January 2007, one Hong Kong dollar has been worth less than one yuan. According to Joseph Yam, a former head of the Hong Kong Monetary Authority, that matters to Hong Kongers visiting mainland China. In a paper published this month, he described the “sense of despair” felt by some of his Hong Kong friends when their currency slipped below parity with the mainland’s. They worried about mainlanders “belittling the value of Hong Kong people’s money”. This is one reason, albeit the most trivial, why Hong Kong might want to reconsider its long-standing peg to the US dollar, Mr Yam argues.

To most economists, Mr Yam included, it all sounds a bit daft. But people do seem to equate the size of a currency unit with its prestige. They think that “one currency is ‘bigger’ than another if one unit of it can be exchanged for more than one unit of the other,” Mr Yam writes. That way, foreign prices are divided not multiplied, diminished not enlarged, when converted into the home currency.

The title of the world’s “biggest” currency belongs to the Kuwaiti dinar, which is now worth about $3.58. The mighty American dollar ranks joint 11th, alongside the dollars of Bermuda and the Bahamas and the balboa of Panama. The Hong Kong dollar, by contrast, ranks about 60 places farther down the list, belittled not only by the Chinese yuan but also by the Botswana pula and the Bolivian boliviano. But before you feel too sorry for them, spare a thought for the Vietnamese. With the demise of the Zimbabwe dollar, theirs is the smallest currency in the world. Wherever they go, they must multiply, not divide.

Source: the Economist


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