Hong Kong’s dollar peg is ‘unassailable,’ says banking exec

Standard Chartered Plc Chief Executive Officer Bill Winters said Hong Kong dollar’s peg to the greenback is “unassailable” at a time when the U.S. has threatened action against China for imposing a national security law on the former British colony.
“The Hong Kong peg is extremely well-supported with monetary reserves in Hong Kong,” Winters said in an interview yesterday with Bloomberg. “Attempts to undermine Hong Kong I’m afraid would have some pretty deleterious effects on the financial system more broadly and it’s hard to see any policy maker in the world thinking that’s a good thing to do anytime, but particularly now, during a pandemic.”
The Hong Kong dollar is pegged to the U.S. dollar in a band that ranges between 7.75 and 7.85 to the U.S. dollar. In turn, Macau’s pataca is fixed to the Hong Kong dollar at an exchange rate of 1.03. As the Hong Kong dollar is pegged to the greenback, both special administrative regions essentially import U.S. monetary policy.
Hong Kong’s linked exchange rate system is supported by foreign reserves of more than $440 billion, according to its de facto central bank. The currency is also trading near the strongest it can be and the city has sold billions of local dollars since April to stop it from strengthening further.
U.S. President Donald Trump decided against moving to undermine the Hong Kong dollar’s peg after aides in his administration weighed the possibility of limiting Hong Kong banks’ access to the greenback as a way of striking back at Beijing. Those against the move were concerned that it would be difficult to implement and could end up hurting the U.S., people familiar with the matter said, according to Bloomberg.
Still, executives at HSBC Holdings Plc have begun wargaming potential disruptions to the Hong Kong dollar peg, as the worsening political situation endangers its appeal, people familiar with the matter have said.
Standard Chartered and HSBC both count Hong Kong as their largest market and are two of the three note-issuing banks in the city.
“Relations between the U.S. and China remain highly charged, driven by both economic and political considerations,” Standard Chartered Chairman Jose Vinals said in its earnings statement yesterday. “We do not expect an easy or quick resolution. We do believe, however, that Hong Kong will continue to play a key role as an international financial hub.” MDT/Bloomberg