Attacking Hong Kong dollar peg would hurt those the US hopes to help

Name: What is the Hong Kong Dollar Peg?
Uploaded: 2020-07-14T09:00:19.000Z
Duration: 1 min 43 s
Description: What is the Hong Kong Dollar Peg?

Washington should bin such proposals as the people of Hong Kong stand to lose the most from undermining the Linked Rate Exchange System

Pursuing them in an attempt to punish China risks immediate damage to US international standing as well as introducing more risks into the global economy

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Hong Kong dollar banknotes are arranged for a photograph on April 23. The HKMA has intervened several times this year to defend its currency peg even before reports emerged that US authorities have considered undermining the Hong Kong dollar’s peg to the US dollar as a way to punish China for its actions towards Hong Kong. Photo: Bloomberg

Neal Kimberley

Published: 5:00pm, 14 Jul 2020Updated: 10:25pm, 14 Jul 2020

The United States is unhappy with China’s new national security law for Hong Kong and is seeking ways to express its disquiet. Some advisers to US Secretary of State Mike Pompeo have reportedly suggested taking measures that would undermine the Hong Kong dollar’s Linked Exchange Rate System (LERS), its peg to the US dollar.

Washington should file those suggestions in the rubbish bin. Such measures would hurt the very Hongkongers that Washington wants to help. It is the Hong Kong people who would primarily lose out if undermining the LERS led to a much weaker Hong Kong dollar.

First reported by Bloomberg on July 7, the notion of undermining the Hong Kong dollar peg had not apparently gained much traction in Washington and hadn’t been aired at a senior level in the White House. Presumably, though, the idea has received greater attention since the story ran.

As it stands, the Hong Kong Monetary Authority has been defending the LERS – to stop the Hong Kong dollar from strengthening rather than weakening. A succession of initial public offerings has been attracting capital inflows into the Hong Kong dollar.

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What is the Hong Kong Dollar Peg?

From an American perspective, any decision to undermine the Hong Kong dollar’s peg to the US dollar needs to factor in the possibility that such action might fail, damaging Washington’s reputation. Even the very attempt might have consequences that US authorities would not like.