Hong Kong Denies Currency Peg Rumours (Again)

by Mary Swire, Tax-News.com, Hong Kong

16 September 2002

From time to time question marks arise over the pegging of the Hong Kong dollar to the US dollar, especially since the SAR's return to China, since presumably one day in the future Hong Kong will need to link its currency to that of the mainland.

So when interbank rates rose sharply at the end of last week, there was another bout of speculation over the viability of the pegged exchange rate. The Hong Kong dollar is pegged to its US counterpart at a rate of HK$7.8 to US$1, and there are no exchange controls, so that interest rates in the two currencies normally move in tandem.

The sudden jump last Friday in the benchmark three-month Hong Kong interbank offered rate (Hibor) to 1.875% from 1.796% may have just reflected events in the US, with a further cut in the Fed's rates suddenly less likely, or it may have been a response to a statements from the Bank of China renewing its negative attitude towards the peg: "the linked exchange rate undermines the prospect of swift integration [of the Hong Kong economy] with the mainland," said the Bank.

However, Financial Secretary Antony Leung Kam-chung responded (as he always does) by saying that the government does not have any plan to change the exchange-rate mechanism.

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