A LINK between the Hong Kong dollar and the yuan is “inappropriate’’ because the yuan isn’t convertible and the peg with the U.S. dollar is still the most appropriate, said the head of the Hong Kong’s de facto central bank.

Hong Kong has fixed its exchange rate with the U.S. dollar since 1983, whilst the mainland abolished a decade-long peg in 2005 and now manages the yuan, or renminbi, against a basket of currencies.

“The U.S. dollar is still the most appropriate anchor currency for the Hong Kong dollar,’’ Chief Executive Joseph Yam of the Hong Kong Monetary Authority (HKMA) said at a business dinner, according to a transcript on the government’s Web site yesterday.

“On linking the Hong Kong dollar to the renminbi instead of the U.S. dollar, this is inappropriate and technically not feasible,’’ Yam said.

Yam added that the U.S. subrpime crisis and its effect on Hong Kong’s economy is still unclear and may spread to the city due to financial globalization. Subprime losses are slowing growth in the United States and dragging down the performance of lenders worldwide.

“The fact that Hong Kong and many emerging markets have so far been spared is not a reason for letting our guard down,’’ said Yam.

Major central banks have injected liquidity into the market in the past three months which isn’t a good sign as this implies the lack of trust between financial institutions over lending to each other, Yam added. (SD-Agencies)