“Local dollar hits all-time low,” ran a South China Morning Post headline on September 8, 1983. The new low came “amid heightened tension preceding the resumption […] of Sino-British talks on the territory’s political future,” the story continued.
When British prime minister Margaret Thatcher visited Beijing in 1982, to begin talks over Hong Kong’s future, uncertainty over the colony’s post-1997 fate had begun to affect its financial markets.
“The end result has been that the Hong Kong dollar has depreciated by a staggering 25 per cent against its American counterpart in the past 12 months alone,” the Post reported on September 18, 1983.
The local currency had fallen to HK$8 per US dollar from HK$6 a year earlier.
On September 25, 1983, a Post headline blared: “$9.50!” and the local currency’s depreciation was labelled “in free-fall”. The exchange rate was described as being at “banana republic levels”.
Hong Kong financial secretary John Bremridge warned of “badly burned fingers” for currency speculators, according to a Post report on September 27, and denied the government planned to peg the exchange rate.
“This contemporary weakness in Hong Kong’s currency is the inevitable result of fundamental flaws in the territory’s monetary system,” a Post columnist argued on October 6, adding that “unless serious steps are taken towards monetary control, the exchange rate will conceivably continue its inexorable slide.”
Then, on October 15, the government pegged the local dollar to the US currency at a rate of HK$7.80. The reception was positive but there was confusion over how the foreign-exchange market was to operate.
Markets continued on a path to normality over the following month. Interest rates fluctuated but supermarkets and oil companies were considering price cuts, the Post reported on October 18.
“The pegging of the dollar […] saved the day, calmed people’s minds, and restored a semblance of order and confidence,” a Post columnist wrote on November 18.