Analysis | To peg or not to peg? That is the question for the Hong Kong dollar
The city’s currency has been loyally linked to the US dollar for 34 years – but again that’s being questioned. Could the renminbi now become a more likely new partner?
For 34 years, the Hong Kong dollar has been pegged to its counterpart in the United States at around HK$7.8, with a current trading band of HK$7.75-7.85.
Roughly 40 per cent of the city’s population have known no other value for their local currency, but that doesn’t stop the debate among analysts and observers about the peg’s merits.
Globally, at least 50 currencies are pegged to a major unit: around half to the US dollar, while others, mostly those of micro-states, are mainly linked to the British pound, the euro, South African rand and Australian or New Zealand dollar.
Pronouncements of the imminent demise of the peg in Hong Kong are as regular as clockwork and on March 15, as the Federal Reserve announced a rise in benchmark interest rates, its third since the financial crisis and only three months on from the last increase, attention in Hong Kong turned once again to the tie-up.
The link was also thrust into the spotlight in September 2016 when the renminbi was included in the basket of currencies that makes up the International Monetary Fund’s de facto currency, in December 2015 when US interest rates rose for the first time in almost a decade, and throughout 2014 when Beijing was pushing the renminbi’s internationalisation.
The Hong Kong Monetary Authority (HKMA) resisted speculative pressure on the peg during the financial crisis of 2008, the SARS outbreak in 2003, and the Asian financial crisis of 1997.