Could Hong Kong Dollar Depeg From Greenback Amid Strained US-China Ties? Here's What City's Finance Chief Says

Could Hong Kong Dollar Depeg From Greenback Amid Strained US-China Ties? Here's What City's Finance Chief Says

Hong Kong’s finance chief has asserted the city will "absolutely not" decouple its currency from the dollar despite fund outflows and tensions surrounding Sino-U.S. ties.

The peg with the dollar is aligned with national strategies and it cements the city's position as a global financial center, Hong Kong Finance Chief Paul Chan has told the South China Morning Post.

Why It Matters: There have been immense concerns surrounding Hong Kong’s ability to maintain its currency’s peg with the dollar in recent times due to a potential rate hike in the U.S. later this week, recent capital outflows from the country and strained U.S.-China ties.

With the strengthening of the U.S. dollar this year led by past and potential future rate hikes by the Federal Reserve, Hong Kong’s central bank sold $7.24 billion this year to maintain its long-standing peg with the greenback, according to a June 15 report by The Wall Street Journal

The Hong Kong Dollar (HKD) has been pegged to its American counterpart since 1983 and trades within a permitted range of 7.75 to 7.85 HKD per U.S. Dollar.

Chan’s Statement: “This is working within our design [of the currency peg]. There’s no cause for alarm, we have ample liquidity,” the finance chief stated. On the matter of reviewing the long-standing peg, Chan said, “No. Absolutely not. The outflow of capital is mainly because of carry trades.”

Price Movement: The Hong Kong Dollar has been trading near the lower end of its 52-week lows. On Tuesday afternoon in the Asia session, the currency was trending at 7.8489 to the Dollar.

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