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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