After the political unification of Hong Kong with China, Hong Kong is supposed to function as a separate economic entity under the framework of "one country, two systems". However, the increasingly close ties between the two economices have raised the possibility of full economic integration, and even of monetary union as the Chinese currency progresses towards full convertibility. This paper employs the theory of optimum currency area (OCA) and adopts recently developed techniques to test whether China and Hong Kong constitute an OCA. The empirical findings based on disaggregated historical data are overwhelmingly negative. Other considerations also point to a sceptical answer even for the post-1997 era.
Ma, Y. (2002). Do China and Hong Kong constitute an optimum currency area? (CAPS Working Paper Series No.130). Retrieved from Lingnan University website: http://commons.ln.edu.hk/capswp/22
CAPS Working Paper Series No.130 (14/02)