Latest news with #currencypeg
South China Morning Post
5 days ago
- Business
- South China Morning Post
Why ending US dollar peg isn't the answer Hong Kong needs
If I earned a dollar for every article written in the past 42 years predicting the end of the Hong Kong dollar's peg to the US dollar, I would be living a life of genteel luxury, sipping cocktails beside the pool in a tropical paradise not far from here. And yet here we are again, with the Hong Kong Monetary Authority (HKMA) spending upwards of HK$80 billion (US$10.2 billion) since late June to keep the currency within its upper and lower boundaries of 7.75 to 7.85 to the US dollar as speculators test the HKMA's resolve. They trot out long-familiar reasons the peg cannot be sustainable in the long run. Who was it that said that in the long run, we are all dead Let's recall that since its creation in October 1983, the 'dollar peg' , formally known as the Linked Exchange Rate System, has served Hong Kong commendably well. It has delivered stability through the Asian financial crisis, the severe acute respiratory syndrome (Sars) outbreak, the global financial crisis and numerous other disruptions. It has preserved Hong Kong's importance as a global financial hub and seems likely to continue serving us well for the foreseeable future. Behind every speculative flurry, there usually are some valid concerns. Once upon a time, the main drivers were the political and economic uncertainties linked with Hong Kong's transition from British colonial rule to rule from Beijing. In 2011, the main driver seemed to be anxiety over the state of the property market . Pandemic dislocations around Sars and Covid-19 have played a role. Most recently, the speculative flurry is linked to deepening tensions between the United States and China, as well as US President Donald Trump's efforts to rewrite the rules of global economic and financial engagement.
South China Morning Post
16-07-2025
- Business
- South China Morning Post
Hong Kong fights carry trade pressure with US dollar sales to maintain currency peg
The Hong Kong Monetary Authority (HKMA) intervened in the foreign exchange market on Tuesday, for the sixth time since late June, purchasing the local currency and raising overnight lending costs in an effort to deter traders seeking to profit from the city's interest rate differential with the US dollar. The city's de facto central bank said on Tuesday that it sold US$1.89 billion and bought HK$14.83 billion at HK$7.85 per US dollar during New York trading hours on Monday. The authority added that these operations would reduce the aggregate balance – a gauge of banking sector liquidity – to HK$86.43 billion on July 17. The local currency traded at HK$7.8496 after the intervention. It was the sixth time that the HKMA intervened in the market to defend the currency peg since June 26, buying a total of HK$86.93 billion and selling US$11.11 billion. Hong Kong's currency has been pegged to the US dollar since 1983, initially setting the rate at HK$7.80 per US dollar. In 2005, the HKMA established a narrow trading band, allowing the Hong Kong dollar to fluctuate between HK$7.75 and HK$7.85. Under the linked exchange rate system, the HKMA is required to intervene whenever necessary to maintain the currency within this range. Hong Kong's currency has been pegged to the US dollar since 1983. In early May, the HKMA intervened in the foreign exchange market by buying US dollars and selling Hong Kong dollars, as the local currency strengthened, driven by gains in regional currencies and a shift away from US dollar assets.
South China Morning Post
11-07-2025
- Business
- South China Morning Post
HKMA intervenes in the market for the fifth time in 2 weeks to defend currency peg
The Hong Kong Monetary Authority (HKMA) intervened in the foreign-exchange market on Friday for the fifth time in two weeks, scooping up the local currency and increasing overnight lending costs to drive away carry traders who have sought to take advantage of the city's rate gap with the US dollar. Advertisement The city's de facto central bank sold US$1.69 billion during New York trading hours on Thursday and bought the equivalent of HK$13.28 billion at HK$7.85 per US dollar, the authority said in a statement on Friday morning. The moves would reduce the aggregate balance – a measure of the banking sector's liquidity – by the same amount to HK$101.22 billion on Monday when the transactions would be settled, it added. The local currency traded at HK$7.8497 after the intervention. The move was the fifth time that the HKMA intervened in the market to defend the peg, buying HK$72.35 billion and selling US$9.22 billion since June 26. Advertisement Hong Kong pegged its dollar to the US currency in 1983 at HK$7.80 per US dollar. In 2005, the HKMA allowed its value to fluctuate between HK$7.75 and HK$7.85 and the authority was obliged to intervene to keep the currency in that range. 'There is a wide gap between the US and Hong Kong dollar interest rate, which encourages traders to conduct carry trades to earn big profits from the rate differentials,' said Tom Chan Pak-lam, chairman of the Hong Kong Institute of Securities Dealers.
South China Morning Post
04-07-2025
- Business
- South China Morning Post
HKMA defends Hong Kong currency as higher US rates threaten trading band
The Hong Kong Monetary Authority (HKMA) intervened twice in the foreign exchange market overnight as gaping interest-rate differentials encouraged carry trades and pressured the local currency to the weak side of its trading band. The authority sold a total of US$3.775 billion during New York trading hours on Thursday, and bought the equivalent of HK$29.634 billion at HK$7.85 per dollar, it said in a statement on Friday. The moves would reduce the aggregate balance – a measure of the banking sector's liquidity – by the same amount to HK$114.541 billion on July 7, it added. The local currency traded at HK$7.8488 after the market intervention. The HKMA had earlier sold US$2.55 billion on July 1 and US$1.2 billion on June 26 in New York to defend the currency peg. Hong Kong pegged its currency to the US dollar in 1983 at HK$7.80 per dollar. In 2005, the HKMA introduced a narrow trading band, allowing its value to fluctuate between HK$7.75 and HK$7.85. Under the linked exchange rate system, the HKMA is obliged to intervene to preserve the trading band. The depreciation pressure came from carry trades, in which investors borrow in a low-interest-rate currency to invest in assets denominated in a higher-yielding currency. The overnight interbank rate in Hong Kong stood at 0.02 per cent, versus 4.3 per cent in the US. Local three-month bills currently yield about 0.58 per cent, while similar US Treasury bills pay 4.35 per cent. The gap is 'mouth-watering' for traders looking for profit from the rate differentials, according to Ryan Lam Chun-wang, head of Research for Hong Kong at Shanghai Commercial Bank.
South China Morning Post
26-06-2025
- Business
- South China Morning Post
Hong Kong's interbank interest rate is poised to rise as the HKMA buys local dollar to defend peg
The Hong Kong Monetary Authority (HKMA) has stepped into the financial market for the first time since 2023 to support the weak local currency, which may lead to an increase in interbank interest rates and add to the burden on mortgage borrowers. The city's de facto central bank sold US$1.2 billion worth of US dollars to buy Hong Kong dollars at HK$7.85 per US dollar, according to a statement on Thursday. The action came after the local currency hit the weak end of its trading band at HK$7.85. The Hong Kong currency's peg with the US dollar has been in place since 1983. In an initiative launched in 2005, the HKMA intervenes to maintain the exchange rate within the trading band of HK$7.75 to HK$7.85 per US dollar. After settlement on Friday, the intervention is expected to decrease the HKMA's aggregated balance – a measure of the Hong Kong banking sector's liquidity – to HK$164.1 billion (US$20.9 billion), down by HK$9.42 billion. Property buyers for China Vanke's Le Mont residential project in Tai Po at the project's sales office in Cheung Sha Wan on Photo: Nora Tam 'When the aggregate balance drops, there [is] less liquidity in the interbank market, which would drive up short-term [interest] rates,' said Tommy Ong, managing director of T.O. & Associates Consultancy. Hong Kong's interbank offered rate, or Hibor, is the interest rate that banks charge each other and is used to price many loans in the city.
