Currency Substitution Between the Hong Kong Dollar and the Renminbi in South China

The present paper estimates the demand for the Hong Kong currency circulating in the Guangdong Province of China and Macau. The amount of Hong Kong dollars circulating in the Guangdong (Macau) region is reckoned to be 7.4 (3.2) percent of the total amount issued in Hong Kong. The estimated coeficients in the currency demand equation suggest that the Hong Kong currency in Guangdong is used mainly for transactions. Therefore, in spite of strong …