Hong Kong dollar peg: why the city’s linked exchange system is an important buffer against financial crisis
- Ongoing anti-government protests have led to some speculation that Hong Kong could be forced to sever its peg to the US dollar
- But the city’s de facto central bank has stressed the importance of the linked exchange system, which was introduced in 1983 to avert a financial crisis
This is the first article in a three-part series looking at the outlook for Hong Kong's dollar peg system under the city’s current political uncertainty. You can read the second story in the series here and the third story in the series here.
Hong Kong’s dollar peg has been thrust into the spotlight as a result of six months of anti-government protests that have roiled the semi-autonomous city. The protests, which were sparked by a now-withdrawn extradition bill but morphed into wider calls for democratic freedoms and an investigation of alleged police brutality, have taken a sharp toll on the local economy.
“The monetary policy objective of Hong Kong is currency stability,” said a spokesperson for the HKMA. “The LERS (Linked Exchange Rate System) has proved to be highly resilient, weathering many economic cycles and crises, and has continued to operate smoothly notwithstanding massive fund inflows and outflows in the past decade.”
The LERS has proved to be highly resilient, weathering many economic cycles and crises, and has continued to operate smoothly notwithstanding massive fund inflows and outflows in the past decade
Why was the Hong Kong dollar peg introduced?