HK peg architect slams ‘naive’ BoE report

The Bank of England should apologize for a report which warned of risks resulting from fund outflows in the wake of Hong Kong’s protests, according to one of the architects of the city’s exchange rate system.

The U.K. central bank’s Financial Stability Report, which cited $5 billion of portfolio outflows, did not account for inflows of short-term capital which offset the withdrawal in the city’s balance of payments, said John Greenwood, chief economist at Invesco Ltd. and an architect of Hong Kong’s dollar peg.

He added that the fact that the Hong Kong Monetary Authority (HKMA) had not stepped in to defend the currency peg shows there was no net outflow. Its last purchase of Hong Kong dollars took place in the spring, prior to the start of the protests.

“The Bank of England report was frankly misleading and they should apologize for it,” Greenwood said at a press conference in Hong Kong last week. “That was so short-sighted and so naive as to be not worthy of a central bank.”

Greenwood is a member of HKMA’s currency board sub-committee, which monitors and reports on the linked exchange rate system that pegs it against the U.S. dollar in a range of 7.75 to 7.85. The currency has surged this month to the strong side of its trading band, appreciating to the firmest level against the greenback since April 2017.

HKMA has previously disputed the BoE analysis, saying it didn’t mean there had been an actual outflow of money from its banking system. MDT/Bloomberg