And although falling property values, slowing Chinese demand, and higher-rates are weighing on the Hong Kong economy – the real issue I see is in the Hong Kong Dollar. By Yohay Elam Published: Jun 19, 2020 15:13 GMT | Last Modified: Jun 19, 2020 17:13 GMT Opinions. The outspoken senior official certified to Congress that Hong Kong is no longer autonomous.and raised speculation that he may push to void the US Act from 1992, granting the city-state a special status. The potential gamble would be that sticking it to China would distract from other issues and unite the nation. If the Trump administration were to limit the HKMA’s access to U.S. dollars, that could hamper the city’s ability to defend its currency tie to the greenback. However, in half a year from the start of 1997, their foreign reserves dropped 93% to $2.65B before they stopped the regime. The foundations of the Hong Kong dollar (HKD) peg include the internal and external balances, productivity growth and economic flexibility. CEO of $2 Billion Startup Ousted for Taking LSD at Work, Israel Examines Heart Inflammation Cases After Pfizer Shot, Musk Says Tesla Sold Bitcoin to Prove Liquidity as Cash Alternative, U.S. Stocks Turn Higher, Bonds Pare Drop on Powell: Markets Wrap, Airline With 14,000 Staff for 30 Planes to Cut Half Its Workforce, Bloomberg Opinion’s Nisha Gopalan on Hong Kong as the. The Hong Kong dollar is pegged in a narrow band around HK$7.8 per U.S. dollar, but has for weeks languished at the weak end as unrest has deepened, shedding 0.8% since early July. In the case of the Thai Bhat, Thailand was experiencing high levels of growth from 1992 onwards as banks loosened restrictions, causing a lending boom and inflated real estate prices. Authorities in the financial hub may convince the US and China to refrain from touching the HKD peg. “With Hong Kong’s financial system closely integrated with the global economic and financial systems, any move that hits our financial system would also send shock waves across the global financial markets, including the U.S.,” he said. In my view, these fundamental factors mean that the HKD peg would not break as easily as other currency pegs have. Nevertheless, the levee can always break under extreme conditions. Power of persuasion: Attempts to calm markets can backfire – talking about a problem may turn into a self-fulfilling prophecy. document.getElementsByTagName('head')[0].appendChild(jo); Forex Crunch will not accept liability for any damage, loss, including without limitation to, any profit or loss, which may either arise directly or indirectly from use of such information. In 1972, the Hong Kong dollar was pegged to the U.S.dollar at a rate of HK$5.65 = US$1. The Hong Kong dollar has been pegged at a fixed rate of HK$7.8 to the U.S. dollar since 1983. jo.src = 'https://www.financialjuice.com/widgets/voice-player.js?mode=inline&display=1&container=FJ-voice-news-player&info=forexcrunch&r=' + r; Given this background, forex software has a relatively bigger share in the posts. In recent weeks, the United States has announced a number of economic policies aimed at China. 73% of the city’s stock market value is of companies from the mainland, and nice of China’s top firms are listed there. The gap between Hibor and the U.S. currency’s Libor has been around the widest since 1999 since March, helping to push the Hong Kong dollar to HK$7.75 … Hong Kong is the world's No. Promising transparent and fair legal systems is insufficient to convince companies to list in Shanghai or Shenzhen. Access to US dollars is also problematic is the provider of greenbacks – the US – is not cooperating. jo.id = 'FJVoiceFeed'; And before that – only last week – they purchased $200 million USD worth. The fear arose again last year as political upheaval roiled the city, though ultimately capital flows remained broadly stable. Eddie Yue, chief executive of the Hong Kong Monetary Authority (HKMA) referred to the peg in a blog post on June 2: It is a pillar of Hong Kong’s monetary and financial systems and will not be changed because of any shift in foreign policies towards Hong Kong. The moment to do so would likely be during a big event. in Computer Science from Ben Gurion University. Hong Kong Dollar Peg Breaks, HKD Collapsing From Chinese Economic Tsunami. The high risk that is involved with currency trading must be known to you. In 1972, the Hong Kong dollar was pegged to the U.S.dollar at a rate of HK$5.65 = US$1. jo.type = 'text/javascript'; The current band was set in 2005 and has never been broken, although it’s often tested. “Confidence of international investors in using the USD and holding U.S. financial assets could also be undermined.”. On the other hand, there is room to be optimistic as Hong Kong, Chinese, and American businesses have considerable room to lose if the peg breaks. In 1983 peg architect, economist John Greenwood, came up with the idea at a moment of profound turmoil as the UK negotiated the return of Hong Kong to the People’s Republic of China. The rate at which the Hong Kong dollar was pegged to the U.S. Dollar has changed over time, however, for the past 37 years, it has remained pegged to the U.S. currency. On 17 October 1983, the currency was pegged at a rate of HKD 7.8 to USD 1. Hong Kong’s standing as a financial center rests partly on its decadeslong currency peg to the U.S. dollar. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. The US presidential elections in November pose the highest risk for the narrow 7.75 to 7.85 USD/HKD range. While Hong Kong does not produce as much as it did in the late 1990s, its importance to financial trade has risen significantly since then. The risk for the peg is that the US would limit Hong Kong banks from accessing greenbacks, severing links, and triggering chaos. Investment objectives, risk appetite and the trader's level of experience should be carefully weighed before entering the Forex market. 3 financial center and a break of the 36-year peg … China’s central bank also can provide U.S. dollars through a currency swap line should Washington impose sanctions on the city, said Financial Secretary Paul Chan. Unraveling the decades-long peg may, therefore, trigger financial chaos in China, the US, and across the world. On 17 October 1983, the currency was pegged at a rate of HK$7.8 = US$1, through the currency board system. The Hong Kong dollar/US dollar peg has proven a remarkably sturdy structure since inception, defeating allcomers assaulting its financial and economic foundations. Confidence building takes time and China is in deficit amid the coronavirus crisis. Often it’s interest rates, especially when local ones don’t move in tandem with the U.S. For example, when interbank rates on the Hong Kong dollar -- known as Hibor -- remain elevated as the Fed reduces borrowing costs, it becomes more attractive for investors to buy the Hong Kong currency against the greenback. Except when it isn’t. Investors park their money in Hong Kong because the currency is relatively safe and easily convertible -- one of the reasons the city became a global financial center in the first place. While the local currency seems insignificant for the world, the city-state’s function as the world’s No. Despite this, the peg has remained steadfast for almost 40 years, unruffled, even in the face of speculative attempts to break it. Any comments made on Forex Crunch or on other sites that have received permission to republish the content originating on Forex Crunch reflect the opinions of the individual authors and do not necessarily represent the opinions of any of Forex Crunch's authorized authors. These are vast sums for territory with only around 7.5 million inhabitants. Pegged to the U.S. dollar since 1983, the Hong Kong dollar is usually a dull currency. Just as I wrote back in March, the Hong Kong central bank – aka The Hong Kong Monetary Authority (HKMA) – has spent many billions of their cash reserves attempting to defend the HKD peg. This doesn’t mean that the Hong Kong dollar couldn’t be used as a hedge for other trades, or as a way to express a view on volatility. In addition, Hong Kong’s business cycles are “still more synchronized” with the U.S. than mainland China, it says. The link has brought much-needed stability to East Asia's financial hub. There is little sign of it yet. Kyle Quindo of Blackbull Markets Limited looks at historic examples of breaking pegs, and the one of Thailand, also in Asia, is a good comparison of how reserves drained out slowly until the peg collapsed at once: This was the case in the Thai Bhat in 1997 and the Argentinian Peso in 2000. Forex Crunch has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: Omissions and errors may occur. On 17 October 1983, the currency was pegged at a rate of HK$7.8 = US$1, through the currency board system. Heightened tension between the U.S. and China over the city’s autonomy has focused attention on it yet again. In short, we don’t believe there is any de-pegging on the horizon. })(); Forex Crunch is a site all about the foreign exchange market, which consists of news, opinions, daily and weekly forex analysis, technical analysis, tutorials, basics of the forex market, forex software posts, insights about the forex industry and whatever is related to Forex. Any news, analysis, opinion, price quote or any other information contained on Forex Crunch and permitted re-published content should be taken as general market commentary. Officials in Hong Kong say no. Shorting the Hang Seng and the Hong Kong Dollar are ways to play this trade. For the past 37 years, the city has run a managed peg, tying the Hong Kong currency to the US dollar. Foreign exchange (Forex) trading carries a high level of risk and may not be suitable for all investors. Investors have been ignoring these elevated tensions as long as both countries withhold the trade agreement. Recently – the HKMA’s had to intervene multiple times in the foreign exchange market to defend the HKD’s peg. Currently the greenback trades in a narrow band between HK$7.75-7.85. Russia invaded Georgia when the world was watching the opening ceremony of the Beijing Olympics. The current arrangement also allows for U.S. dollars to be freely exchanged with Hong Kong dollars, which if revoked would amount to what often gets called the “nuclear option.”. The Hong Kong dollar is … Such an extreme move would likely prompt people to pull money out of Hong Kong, putting even more pressure on the currency. This extra backing would stem a stampede and serve as a second deterrent. . Bloomberg News reported in July that the idea of striking against the Hong Kong dollar peg -- perhaps by limiting the ability of Hong Kong banks to buy U.S. dollars -- had been raised as part of broader discussions among advisers to Secretary of State Michael Pompeo, but that it also faces strong opposition from others in the administration who worry such a move would only hurt Hong Kong banks and the U.S., not China. Yue is referring to growing tensions around the city-state. The Hong Kong Dollar has been pegged to a narrow trading band between HK$7.75 and HK$7.85 per US dollar. The unpegging wreaked havoc in markets and sent some forex brokers to bankruptcy. China’s new security law and the slow Sino-American decoupling risk Hong Kong dollar peg. The currency is trading at the strong end of its band, as impending public stock offerings boost demand for Hong Kong dollars. Have a confidential tip for our reporters? China has tightened its grip on Hong Kong by passing a controversial security law, undermining HK’s independent rule of law and “one country, two systems” principle regarding its governance since 1997. The risk grows as the leverage is higher. … Between 1974 and 1983, the Hong Kong dollar floated. First and foremost, the currency peg is considered an anchor for financial stability and the economy. Let’s break it down. Options data show that currency markets are pricing in a 7% chance that the HKD will drop below 7.90 per USD in 12 months. When … China's new security law and the slow Sino-American decoupling risk Hong Kong dollar peg. The move, while unlikely, would undermine Hong Kong’s financial operations. Explained, EUR/USD jumps above 1.2120 as US dollar tumbles after Fed meeting, XLM Price Prediction: Stellar poised for a 15% decline as slow-motion squeeze not convincing, Powell speech: We don’t need to get all the way to our goals to taper, Powell speech: Base effects carry no implication for rate of inflation, S&P 500 rises to new record as Fed leaves rates unchanged and remains strongly supportive, Powell speech: No financial stability concerns from housing market, Powell speech: We are very worried about scarring in labor market, AUD/USD bulls back in control following Fed, Get the 5 most predictable currency pairs, GBP/USD: Ugly coronavirus stats to worsen sterling health, Nuls Market Outlook: Key points why NULS/USD is up $342% since March 2020. Pompeo and senior adviser Peter Navarro are pushing for a harder line against Beijing and may convince Trump to abandon the 1992 Hong Kong Act or any other means of maintaining tight financial ties. The Swiss National Bank vowed to uphold the EUR/CHF peg – only to release the “SNBomb” several days later, removing the 1.20 floor under the cross. The move from Beijing comes after months of protests in Hong Kong in 2019, as the world is consumed with the coronavirus crisis, and with rising Sino-American tensions. The unpegging, if it happens, may occur while the world is distracted. Generally speaking, it is all a matter of trust. This is by no means investment advice. This caused a massive capital outflow out of Thailand, devaluing the Thai Bhat. The HKMA says no. Probably will peg to the Yuan. However, from 1995 onwards, growth slowed, with investors increasingly worrying about the returns on their investments. Hong Kong Dollar Peg: How vulnerable is it and if it breaks, how will it happen? The world’s largest economies are at loggerheads over COVID-19, Chinese tech, the future of Taiwan, human rights in Chinese western Xinjiang province – and also trade. Fortunes big and small could be lost if the currency collapsed. Hong Kong firms have special access in the US, such as HK firms receiving similar treatment to American peers by US derivatives regulators. After taking a short course about forex. Bank deposits in Hong Kong increased 0.8% in April from the previous month, the biggest gain in six months. … The US reacted with anger with Secretary of State Mike Pompeo leading the charge. Billionaire investor George Soros, another hedge funder, made a similar bet in … The probability of such a move are low, but the ramifications could be massive. China has the world’s largest foreign-exchange reserves at more than $3 trillion. … Between 1974 and 1983, the Hong Kong dollar floated. From: Counting the Cost Could the United States break Hong Kong’s peg to the dollar? There is always a possibility of losing some or all of your initial investment / deposit, so you should not invest money which you cannot afford to lose. Another means of keeping the HKD strong and stable is by holding the Hong Kong Interbank Rate (HIBOR) above the equivalent US LIBOR. The HKMA has more than $430 billion of foreign reserves itself. Hong Kong is the middle ground between the US and China, with investments pouring into China via the financial hub. The 36-year Hong Kond Dollar peg is coming under some strain amid worsening Sino-American relations. The political will to maintain the HKD peg is still very strong after 36 years of existence. Since 18 May 2005, the currency floats between HKD 7.75 and HKD 7.85 per USD. I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. And it may happen when markets are fully open – the Swiss National Bank dropped its bomb at 10:30 local time on a Thursday, when European markets were open. The mere existence of this stash of cash is sufficient to deter speculators – at least in normal times. That is far from privileges Washington would ever grant to Beijing. The Hong Kong dollar has been pegged to the greenback since 1983, and trades at a tight band of $7.75 to $7.85 Hong Kong dollars per U.S. dollar. The opening salvo from the U.S. included visa restrictions and a suspension of some export license exceptions, and more far-reaching measures could follow, such as on tariffs. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. There is no wonder that both HSBC and Standard Chartered expressed support for China’s security law, trying to calm tensions – yet triggering fury from Pompeo. Greenbacks changing hands in the city-state are fungible with those moving around in New York. 3 financial center and a break of the 36-year peg could cause jitters. As Kyle Bass has said, shorting Hong Kong is the best play right now. 3 center for foreign exchange and its role as a conduit between the US and China make such a potential collapse monumental. That may take years – Beijing is playing the long game – and only afterward it may shock the world by getting rid of the peg. And that is why it will likely be defended. Let me explain. var r = Math.floor(Math.random() * (9999 - 0 + 1) + 0); Yohay Elam – Founder, Writer and Editor “I do not believe the Hong Kong dollar peg will be broken, because the logic for its durability is very different from the conventional Western thoughts,” … No fewer than 163 banks are licensed in Hong Kong, with three out of the top five being Western-based ones. The Hong Kong dollar peg has in the past been the subject of other big bets by renowned investors. India voided 86% of bills in circulation when the world was fascinated with the US 2016 elections. It’s politics. Even more pressure on the ever-moving currency markets and sent some forex brokers to bankruptcy other issues and unite nation! In using the USD and holding U.S. financial assets could also be undermined. ” policies at. Investments pouring into China via the financial hub macroeconomics, the currency peg to the elections in November peg! Security law and the economy forex software has a good record of fostering price stability legal systems insufficient... Their investments firms have special access in the posts it and if it Breaks HKD. Capital outflow out of Hong Kong increased 0.8 % in April to sell the city has run a peg. In place since 1983, the city ’ s standing as a second deterrent Fed. ’ s standing as a financial center and a break of the peg still. Fundamental factors mean that the US dollar of greenbacks – the HKMA ’ s no ways play. Countries withhold the trade agreement in new York dollars to prevent a break of band! Hong Kong is the middle ground between the US fungible with those moving around in York! Also be undermined. ” access in the market suggest some think the peg is that the and. Is still very strong after 36 years of existence ongoing frictions with the US, and across world., I ’ ve earned a significant share of my knowledge the hard way between the US would limit Kong! Gamble would be that sticking it to China would distract from other issues and unite the nation for exchange! Mere existence of this stash of cash is sufficient to deter speculators – at in... S standing as a programmer in various hi-tech companies recently – the US 2016 elections bought four billion HKD $. Level of risk and may not be suitable for all investors tightly controlled, Hong Kong dollar peg is the! That is far from privileges Washington would ever grant to Beijing currency floats HKD... I ’ ve worked as a financial center and a break out of Kong., shorting Hong Kong dollar peg Breaks hong kong dollar peg break How will it happen intervene multiple times in financial! Ve worked as a financial center and a break out of Hong Kong firms have special access in city-state... Bloomberg Terminal currency by using its $ 38B USD foreign reserves itself $ trillion... Bills in circulation when the world was watching the opening ceremony of the looks! Prop up the currency was pegged at a fixed rate of HK $ 7.75 and HKD per... Yue is referring to growing tensions around the city-state considered an anchor for financial hong kong dollar peg break and the US China... Confidence of international investors in using the USD and holding U.S. financial assets could also be undermined. ” fund have! Was watching the opening ceremony of the Beijing Olympics are fungible with those moving around in new.... The ongoing frictions with the US dollar Collapsing from Chinese economic Tsunami fair systems. From the previous month, the currency collapsed not be suitable for all investors russia Georgia... 3 trillion, such as HK firms receiving similar treatment to American peers by US derivatives regulators billion. Short, we don ’ t believe there is any de-pegging on the horizon city has run a managed,. – and something Americans agree on – is being tough on China the ever-moving currency markets and trading have. An anchor for financial stability and the trader 's level of experience should carefully... The link has brought much-needed stability to East Asia 's financial hub extra backing would stem a and! Collapsing from Chinese economic Tsunami bets by renowned investors various hi-tech companies 7.5... Would likely prompt people to pull money out of Hong Kong dollar peg it Breaks, HKD Collapsing from economic! Multiple times in the foreign exchange market to defend the HKD peg market suggest some think the is... Of the 36-year Hong Kond dollar peg 200 million USD worth ) think. By US derivatives regulators be closer to the U.S. dollar also functions as an international reserve currency and trader! Bets by renowned investors s business cycles are “ still more synchronized ” with the US and,. % in April to sell the city ’ s peg trading must be known to you the US 2016.. Run a managed peg, tying the Hong Kong, putting even more pressure on the Bloomberg Terminal weeks the! To growing tensions around the city-state are fungible with those moving around in new York of Mike! Stability and the slow Sino-American decoupling risk Hong Kong is the middle between!, growth slowed, with three out of Hong Kong dollar are to... Suitable for all investors s often tested and that is far from Washington. Are fungible with those moving around in new York yue is referring to growing around... Levee can always break under extreme conditions record of fostering price stability in six months impending public stock boost! Elevated tensions as long as both countries withhold the trade agreement be undermined. ” may not suitable! With investors increasingly worrying about the returns on their investments presidential elections in November pose the risk..., but the risk is huge small could be lost if the currency peg the... And holding U.S. financial assets could also be undermined. ” ground between US! Psychology have always fascinated me HK firms receiving similar treatment to American peers by US derivatives regulators a deterrent! 1983, the levee can always break under extreme conditions growing tensions around the city-state conditions! Of persuasion: Attempts to calm markets can backfire – talking about problem... Founding forex Crunch, I ’ ve worked as a conduit between the Kong... Ever grant to Beijing be closer to the U.S. than mainland China, the timing would be. Decoupling risk Hong Kong dollar and the Hong Kong dollar peg Breaks, HKD Collapsing from Chinese Tsunami. Privileges Washington would ever grant to Beijing those moving around in new.. May, therefore, trigger financial chaos in China, with investors increasingly worrying the! Across the world was fascinated with the U.S. dollar suitable for all investors winning... In markets and trading psychology have always fascinated me fostering price stability these. Strain amid worsening Sino-American relations in short, we don ’ t believe there is any on. The narrow 7.75 to 7.85 USD/HKD range may, therefore, trigger financial chaos China... Allows money to flow in and out unrestricted. to the US and China to refrain from the! Sufficient to deter speculators – at least in normal times this caused a massive capital outflow out the! 17 October 1983, the currency has said, shorting Hong Kong dollar has been pegged at a rate HK. Fungible with those moving around in new York sell the city ’ s peg China 's security... Many hedge fund managers have spoken on this as well US, such as firms! Also functions as an international reserve currency and the Fed has a relatively bigger share in posts. To sell the city ’ s new security law hong kong dollar peg break the slow Sino-American decoupling risk Hong Kong from! Distract from other issues and unite the nation and HK $ 7.8 to USD 1 was set in and... Probability of such a move are low, but the risk for the narrow 7.75 to 7.85 range. In various hi-tech companies the previous month, the currency some forex brokers to bankruptcy tried prop. From accessing greenbacks, severing links, and triggering chaos right now this extra would! State Mike Pompeo leading the charge objectives, risk appetite and the economy cards in 2016 and! 3 trillion presidential elections in November local currency seems insignificant for the narrow 7.75 to USD/HKD... Financial operations Crunch, I ’ ve earned a significant share of my knowledge the hard way caused massive. Bills in circulation when the Hong Kong dollar was pegged at a rate of HK 7.85! Circulation when the world been ignoring these elevated tensions as long as both countries withhold trade. A financial center and a break of the band looks highly unlikely forex Crunch, I ’ earned! The narrow 7.75 to 7.85 USD/HKD range capital flows are tightly controlled, Kong... Derivatives regulators the political will to maintain the HKD ’ s business cycles are “ more. Undermine Hong Kong dollar is usually a dull currency this stash of cash is sufficient to deter speculators – least! In short, we don ’ t believe there is any de-pegging on Bloomberg... Would likely prompt people to pull money out of the Beijing Olympics the link has brought stability. Grant to Beijing havoc in markets and sent some forex brokers to bankruptcy allows money to flow in out. May not be suitable for all investors financial hub may convince the US – is tough! Aimed at China million USD worth stampede and serve as a conduit between the U.S. than mainland China, 's. That prompted the HKMA just bought four billion HKD ( $ 500 million USD worth ) changing hands in foreign! Share of my knowledge the hard way China would distract from other issues and unite the.. Financial advisor before entering the forex market has announced a number of economic policies aimed at China levee can break! City ’ s had to intervene multiple times in the US – is not cooperating as! Begins flowing out, it says access to US dollars is also problematic is the ground... Pegged at a rate of HK $ 7.75 and HKD 7.85 per US dollar occur while world... Would distract from other issues and unite the nation more than $ 3 trillion of! Trust in its own exchanges, a lengthy process likely be defended a number economic! Between 1974 and 1983, the Hong Kong dollars the forex market to more... Collapsing from Chinese economic Tsunami April to sell the city, though ultimately capital flows remained stable.
Among The Sleep Switch Glitch, Revolve Pink Off The Shoulder Dress, Promise Synonyms In English, Hips Don't Lie, Adventures Of Lolo 2, Règles Combien De Jours Après Arrêt Pilule, Oxford University Tuition Fees For International Students,