Hong Kong's linked exchange rate system has worked well as it is rule-based and transparent, Monetary Authority Chief Executive Joseph Yam says.

In his Viewpoint column published today, he said Hong Kong has a rule-based monetary system to achieve exchange-rate stability through passive foreign-exchange market operations at pre-determined exchange-rate levels.

He said this has ensured the money-market effects of the operations are not sterilised so the necessary interest-rate adjustments to stabilise the exchange rate can take effect as soon as the exchange rate comes under pressure.

The credibility of the system depends on a high degree of understanding, particularly in the international financial community, of how the system operates and how adjustments are manifested in the financial markets and the economy.

"This understanding should be based on objective analysis on the pros and cons of a fixed exchange rate compared with a flexible one in the special circumstances of Hong Kong, which is one of the most externally oriented economies in the world," Mr Yam said.