Hong Kong Remains Committed To USD Peg
Wednesday, August 10, 2011
Norman T.L. Chan, Chief Executive of the Hong Kong Monetary Authority (HKMA),
has confirmed that, despite the downgrading of United States sovereign debt,
Hong Kong is fully committed to the Linked Exchange Rate System and has no intention
of changing it.
The Linked Exchange Rate System is implemented in Hong Kong to stabilize the
exchange rate between the HKD and the USD. The HKMA guarantees to exchange USD into
HKD, or vice versa, at the rate of 7.80. In practice, the HKMA has also set
a lower limit at 7.75 and an upper limit of 7.85.
In his statement, Chan said that the link has served Hong Kong very well as
the anchor for monetary and financial stability since 1983, and that the downgrading
of the US by Standard & Poor’s did not come as a big surprise.
“We do not believe the downgrading would have significant impact on the
yields of US Treasuries,” he continued. “We have observed that on
previous occasions when market turbulence and risk aversion occurred, the demand
for US Treasuries as safe haven assets actually increased. This was also true
during the last two weeks when the US and global stock markets declined rather
sharply.”
“Similarly,” he added “the downgrading of US’s credit
rating by one notch should not affect US dollar’s position as a major
pricing and settlement currency in international trade and financial markets.
In the past, whenever market turbulence happened, even though when it originated
from the US, risk aversion activities would help mitigate downward pressure
on US dollar exchange rate. Therefore, the downgrading of US’s credit
rating should not bring about major pressure on US dollar exchange rate in the
short run.”
He pointed out that there were likely to be significant market volatilities
going forward, but that Hong Kong should continue to strengthen the resilience
of its financial system to cope with such volatilities. |
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