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".