For over 30 years, the Hong Kong has pegged its currency, the Hong Kong dollar, to the US dollar. At the same time, Hong Kong places hardly any restrictions on capital flows into or out of Hong Kong. From time to time, the question comes up whether Hong Kong should continue to peg its currency to the US dollar or switch to something else such as peg its currency to a basket of currencies rather than just the dollar, or peg its currency to the Chinese renminbi, or perhaps just switch to a floating exchange rate system. Discuss the pros and cons of continuing with the current policy of a peg to the US dollar. Your answer must include implications of the theory of the impossible trinity. (10 points)

?