Profits, Politics and Panics
How Hong Kong's banks and bank crises shaped the miracle economy.
Summary
Leo Goodstadt worked in the Hong Kong government as head of the Central Policy Unit and wrote this history of Hong Kong's banking system from 1935 to 1985, drawing on colonial archives that had recently become available.
The book's argument runs against Hong Kong's reputation for laissez-faire. Goodstadt shows that the banking system was repeatedly unstable, with runs and failures in 1935, in the 1960s including the Ming Tak and Canton Trust failures and the 1965 crisis that took down Hang Seng's independence, and in the early 1980s. He documents the colonial government's reluctance to regulate, its dependence on the Hongkong and Shanghai Banking Corporation to act as an unofficial central bank, and the political constraints imposed by London and by the need to accommodate Chinese business interests.
He also covers the monetary arrangements: the sterling link, the float after 1974, and the currency crisis of 1983 that produced the dollar peg. His general claim is that Hong Kong's financial stability was achieved through repeated crisis and reluctant regulation rather than through a coherent free-market policy, and that the official history has been written backward from the result. The archival research is the book's contribution. It is written for readers with some knowledge of Hong Kong and is not an introduction to the territory.
Key takeaways 7
- Hong Kong's banking system experienced repeated runs and failures, which contradicts its reputation for stability through non-intervention.
- The colonial government relied on the Hongkong and Shanghai Banking Corporation to perform central banking functions it declined to establish.
- Regulation in Hong Kong followed crises rather than preventing them, and each round was resisted until failure forced it.
- Chinese-owned banks were treated differently by the colonial administration than British-owned ones, which shaped which failures were rescued.
- Goodstadt argues that Hong Kong's laissez-faire reputation was constructed retrospectively and does not describe the historical record.
- The absence of a central bank left the currency exposed to political shocks, which the 1983 crisis demonstrated.
- Depositor protection was resisted for decades on the argument that it would encourage risk-taking, and its absence produced runs instead.
Who should read it
Readers studying Hong Kong's financial system or the history of banking regulation in a jurisdiction that claimed not to regulate.
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