NewHong Kong’s dollar peg safe from attacks by speculators seeking ro undermine link to US dollar
Hong Kong Monetary Authority has ample funds and tighter bank regulations to fight off speculative attacks
Massive speculative attacks against the Hong Kong dollar’s peg to the United States dollar is unlikely because the city’s de facto central bank has ample ammunition to fight them off and tightened regulations on banks made it difficult for speculators to get the financial backing they need, according to finance experts.
Wilson Chan, an economics and finance professor and associate director of the City University of Hong Kong’s master of business administration programme, said he believes there is virtually no chance for the peg to be broken.
“Not only do speculators need much greater fire power to break it since the Hong Kong Monetary Authority (HKMA) has a huge war chest, banks’ proprietary trading volumes and lending capacity to fund clients’ derivative products trading activities have shrunk a lot under the Basel III regulations,” he told the Post.
“Having said that, this does not mean the currency volatility will go away any time soon ... as long as there is some volatility, speculators will make profits.”
Chan said given the interest rate differential between the US and Hong Kong, small as it is, large institutional investors can profit by borrowing and shorting large sums of the Hong Kong dollar and invest the proceeds into the US dollar.
They can reap gains both from the Hong Kong dollar’s depreciation and interest earned on the US dollar.