THE shotgun marriage of the Hong Kong dollar to the United States unit in 1983 means the territory's currency is, in sickness and in health, bound firmly to the battered greenback.
After weathering panics caused by bank collapses, near bank collapses, Tiananmen Square, and the sell-off of Asian currencies seven weeks ago, the Government sees the Hong Kong dollar peg as crucial to stability.
Despite the US dollar's woes, the Hong Kong dollar was trading around HK$7.73 to US$1 late yesterday, well inside the HK$7.8 limit imposed by the peg.
Under the peg system, note-issuing banks must deposit US$1 for every HK$7.8 issued.
Hong Kong's note issue is more than 467 per cent backed by the largest foreign exchange reserves in the world, equivalent to more than 10 months imports, according to the Hong Kong Monetary Authority (HKMA).
Both the HKMA - the nearest thing Hong Kong has to a central bank - and outgoing Financial Secretary Sir Hamish Macleod, have made it clear that they believe the peg is the best system for the territory despite its apparent inflexibility.
The peg was born after the then-freely floating Hong Kong dollar started diving in September 1983, falling to HK$9.50 against the US dollar from HK$7.67 two weeks earlier. 'Can there be anyone left who seriously questions the importance to Hong Kong's stability and prosperity of the linked exchange rate, firmly supported by our substantial reserves?' Sir Hamish said in his final budget last week.
