Interestingly, the year HKD yields are in this case always below the range, except in March when they are just inside the range. This suggests that market participants attached little weight to the risk of the currency board being broken. There are two main conclusions of the analysis.
First, with the currency board having remained unchanged for 38 years, it is clear that the likelihood of a collapse of the peg must on average have been very low, perhaps a fraction of a percent per annum. Had the probability been materially higher, one would have expected to see one or several episodes in which the currency board was overrun. Second, the HK dollar peg appears highly credible to market participants. If anything, a strengthening of the HKD above the 7. While such a switch seems unlikely in the near term, from an historical and political perspective it remains a possibility in the more distant future.
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Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. HKD is the abbreviation for the Hong Kong dollar, the official currency of Hong Kong, which is one of the most traded currencies globally.
Hong Kong is a leading global financial center and its economy is considered to be the freest in the world. The Hong Kong dollar was first seen as a distinct currency in Before then, various foreign currencies had been used and continued to be used even after the HKD's inception.
In , the HK dollar was pegged to the U. Since then, it has remained pegged to the dollar, with the HKMA adjusting its value from time to time. If, and when, the HKD hits either the upper or lower bound, the HKMA, which acts as the de facto central bank, intervenes to stabilize the currency.
This trading band versus the USD has been in place since , although the upper and lower limits have been adjusted periodically. One notable attempt was made by legendary hedge fund manager George Soros in The HKD is the ninth most traded currency, and because it is pegged to the U.
Established in , the Hong Kong Monetary Authority is the central bank of the island and acts to control inflation and maintain the stability of the Hong Kong dollar HKD and of the banking sector through its monetary policy. One of the key roles of the HKMA is maintaining currency stability. The fixed exchange rate system seeks to maintain parity with the USD within a tight range, allowing HKD note-issuing banks to issue new banknotes only when they deposit an equivalent value of U.
Banknotes are then run through a government exchange fund that holds U. Key Points. The top advisors of U. President Donald Trump were considering proposals to strike against the Hong Kong dollar peg, according to a report by Bloomberg this week, citing sources. Analysts suggested that, however, the U. Washington's interests are at stake, analysts say, pointing out that banning Hong Kong from buying up U. Hong Kong one-hundred dollar banknotes and U. Hong Kong's Financial Secretary Paul Chan has stated that even if the US takes measures to make Hong Kong dollar settlement inconvenient, the government has a contingency plan.
VIDEO Squawk Box Asia. Meanwhile, Washington's own interests are also at stake.
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