Hong Kong to maintain US dollar peg despite geopolitical tensions

[SHANGHAI] Hong Kong will maintain its currency peg to the US dollar, the financial hub’s leader said in an interview published on Monday (Jun 9), despite escalating geopolitical tensions and some calls to shift to a Chinese yuan peg.

The Hong Kong dollar has experienced sharp volatility over the past two months, strengthening to hit the strong end of the trading band and prompting the city’s de-facto central bank to forcefully step up intervention, before the currency softened to near the weaker limit in recent sessions.

“Hong Kong’s link with the US dollar has proven to be one of the fundamental success factors,” John Lee told the South China Morning Post, noting that the peg had always come under pressure, especially in uncertain times.

In order to defend the currency’s peg to move within the 7.75 and 7.85 per US dollar range, the Hong Kong Monetary Authority injected HK$129.4 billion (S$21.2 billion) into the market to purchase US$16.7 billion worth of US dollars in multiple interventions last month.

Some market watchers have called for switching Hong Kong’s US dollar peg to the yuan at a time when trade tensions between the world’s two largest economies have created uncertainty.

Lee said his administration would strengthen the city’s role as the global offshore yuan hub, while continuing to defend the US dollar peg.

“We will do more (offshore yuan) product diversification, so that it will generate more trade,” he told the newspaper, noting that about 80 per cent of the offshore yuan payments were processed in Hong Kong. REUTERS