Hong Kong has no plans to change its currency peg against the U.S. dollar, a government official said on Friday, dismissing talk of the authorities rethinking policy after being forced into heavy sales of the Hong Kong dollar to curb its strength.
KC Chan, Secretary for Financial Services and the Treasury, asserted Hong Kong’s commitment to the pillar of its monetary policy during a Legislative Council panel discussion on financial affairs and housing that was available via webcast.
“We have no plans to change the Hong Kong dollar peg,” Chan said in response to a question from a legislator.
The 29-year-old peg has come under pressure recently, as the former British colony, along with other Asian centers, became favored destinations for funds unleashed by major quantitative easing measures in the U.S., Europe and Japan.
During the past two weeks, the Hong Kong Monetary Authority sold a total of $3.5 billion worth of Hong Kong dollars into the market via nine interventions to curb the strength of the local currency.
Established in 1983, and the last major change to the peg was in 2005 when the trading band was widened to allow the Hong Kong dollar to trade between 7.75 and 7.85 against the U.S. dollar.
Under the peg, the Hong Kong Monetary Authority (HKMA) is obliged to intervene when the local currency hits the upper or lower limit.
Back in June, Joseph Yam, an adviser to China’s central bank and a former Hong Kong Monetary Authority chief, suggested Hong Kong may want to consider ditch its exchange rate target, fuelling speculation that the peg might be abandoned.
However, most analysts believe the peg remains the most suitable system for Hong Kong for the time being, given the benefits of switching to another currency regime are unclear.
“We continue to expect the HKMA to maintain the integrity of the HKD peg and do all it needs to in order to keep the system intact,” Paul Mackel, HSBC’s head of Asian FX research, said in a recent report.
Hong Kong, a former British territory, returned to Chinese rule in 1997 but has kept its own distinct financial system. Many analysts expect the big change in policy will only happen when the yuan becomes freely convertible, in which case the Hong Kong dollar could be re-pegged against the Chinese currency.
Since it was adopted, the peg has survived a number of speculative attacks as well as regional and global financial crises, and authorities have continued to reiterate their commitment to the peg.
In the meantime, the most worrying aspect of the surge of funds into Hong Kong has been the effect on property prices, which have risen about 20 percent in the first nine months of this year, with even small and medium-sized units climbing some 21 percent.
Fearful of the social impact, the city introduced new measures to curb runaway prices last Friday, including a 15 percent tax on overseas buyers and an increase of the stamp duty on short-term transactions.
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