Hong Kong Monetary Authority chief pledges support for US dollar peg
Hong Kong Monetary Authority chief executive Norman Chan Tak-lam said yesterday that he would continue to support the local dollar's peg to the US currency when his second term begins in October.
His comments - in an article on the HKMA website marking his fifth anniversary as the city's de facto central banker - came a week after the authority spent US$2.1 billion to defend the Hong Kong dollar by intervening in the foreign exchange market.
Chan rejected calls to abolish the peg, which effectively makes the Hong Kong dollar hostage to US monetary policy and would impact rates for housing and loans in the city.
"Despite its imperfections, the Linked Exchange Rate System (LERS) is still the most suitable regime for Hong Kong after thorough consideration of all the related factors and analyses," Chan wrote. "Looking ahead, the US dollar is likely to reverse its depreciating trend of the past few years, and, consequentially, the Hong Kong dollar, through the LERS, will face a quite different set of circumstances."
Chan's views contrast with those of his predecessor Joseph Yam Chi-kwong who, in an academic paper he wrote in 2012, indicated the peg could be reviewed.
In the article reviewing his first five-year term which ends in September, Chan said the HKMA and the government's commitment to the peg was "clear and unwavering".
Chan - who was granted a second term in March with an 8 per cent pay rise - said developing yuan business in the city would continue to be his focus.
Beijing has allowed the yuan to be used for international trade settlement since mid-2009.
Deposits of the currency in the city exceed one trillion yuan, while the value of cross-border trade settlements exceeded 3.8 trillion yuan last year.
"This is in addition to a growing range of renminbi financial intermediation activities and products in Hong Kong, providing an unparalleled one-stop financing, investment and wealth management platform for individuals and enterprises," Chan wrote.
Chan said in his second term he would aim to achieve a better return for the Exchange Fund and make sure the local financial system would not be affected by the potential outflow of capital as the US winds down its monetary easing policy from this year.