The appreciation in the renminbi will not affect Hong Kong's Linked Exchange Rate system, Monetary Authority Chief Executive Joseph Yam says, adding that it may actually positively impact the city's competitiveness.

In his weekly Viewpoint column issued today on the authority's website, Mr Yam said the recent changes in the renminbi exchange rate have arisen naturally out of the development of the Mainland economy.

He said although the appreciation in renminbi may rise the cost of trips to the Mainland and the price of imported goods, there are also likely to be some beneficial effects on Hong Kong's economy.

"If the cost of our visits to the Mainland increases, then the opposite must be true for visitors to Hong Kong from the Mainland and other countries whose currencies are also appreciating against the US dollar, and this will benefit the tourism and retail sectors here. There will also be positive effects on the services sector and on Hong Kong's general competitiveness."

Currency Board system

Mr Yam said recent movement in the renminbi exchange rate have had no effect on the Hong Kong dollar exchange rate and will not affect the city's monetary policy.

"It is clear that our Currency Board system is functioning effectively. Of course we cannot rule out the possibility that there may be some psychological effect on the markets as the renminbi exchange rate reaches 7.8, and we will be keeping a close watch on developments.

"But it is quite clear to me that market participants well understand that the Hong Kong Government remains committed to the Linked Exchange Rate system and that there is no logical reason why appreciation in the renminbi exchange rate should lead to any change."