If I earned a dollar for every article written in the past 42 years predicting the end of the Hong Kong dollar’s peg to the US dollar, I would be living a life of genteel luxury, sipping cocktails beside the pool in a tropical paradise not far from here.
And yet here we are again, with the Hong Kong Monetary Authority (HKMA) spending upwards of HK$80 billion (US$10.2 billion) since late June to keep the currency within its upper and lower boundaries of 7.75 to 7.85 to the US dollar as speculators test the HKMA’s resolve. They trot out long-familiar reasons the peg cannot be sustainable in the long run. Who was it that said that in the long run, we are all dead?
Let’s recall that since its creation in October 1983, the “dollar peg”, formally known as the Linked Exchange Rate System, has served Hong Kong commendably well. It has delivered stability through the Asian financial crisis, the severe acute respiratory syndrome (Sars) outbreak, the global financial crisis and numerous other disruptions. It has preserved Hong Kong’s importance as a global financial hub and seems likely to continue serving us well for the foreseeable future.
Behind every speculative flurry, there usually are some valid concerns. Once upon a time, the main drivers were the political and economic uncertainties linked with Hong Kong’s transition from British colonial rule to rule from Beijing. In 2011, the main driver seemed to be anxiety over the state of the property market. Pandemic dislocations around Sars and Covid-19 have played a role.
Most recently, the speculative flurry is linked to deepening tensions between the United States and China, as well as US President Donald Trump’s efforts to rewrite the rules of global economic and financial engagement.
In an article in the academic journal Fair Observer, Georgetown University economist Masaaki Yoshimori lays out the reasons for the present flurry, though he does not believe the peg would or should be altered any time soon. The reasons he cites include Hong Kong’s deepening economic integration with the mainland, the acceleration of Beijing’s internationalisation of the renminbi, US-China tensions over trade, multilateralism and economic development, and a range of economic indicators that point to market perceptions of the peg’s vulnerability.
