exchange

Why Hong Kong pegs its currency to the US dollar

why is Hong Kong's dollar pegged to the

American greenback it's all about

stability in 1983 the Hong Kong

government opted to peg its dollar to

its American counterpart an exchange

rate of 7.8 Hong Kong dollars to one US

dollar it did this because the imminent

handover of the territory from the UK to

China led to a loss of confidence in the

Hong Kong dollar the currency which had

been free-floating plunged from a rate

of 5 Hong Kong dollars to one u.s.

dollar to nine Hong Kong dollars to one

u.s. dollar in 1983 before the peg came

into effect in 2005 the government

introduced a trading range of between

seven point seven five and seven point

eight five Hong Kong dollars to one US

dollar Hong Kong authorities chose to

peg the currency to the American dollar

because the global market has long had

the most confidence in US authorities

when it comes to managing the economy

and the u.s. dollar is the most commonly

used international currency in trade and

financial transactions but opinions are

divided supporters say that Hong Kong is

a relatively small economy is best

served by pegging its currency to a

large account like the u.s. they say

doing so has helped Hong Kong weather a

number of political crises and economic

recessions including the Black Monday

stock market crash of October 1987 the

June fourth incident at Tiananmen Square

the Asian financial crisis in 1997 the

viral SARS outbreak in 2003 and the

global financial crisis in 2008 critics

on the other hand point out that the peg

has resulted in Hong Kong losing control

of interest rates because the city has

to synchronize its rates with those of

the u.s. some also argue that the peg

has led to artificially low interest

rates which in turn contribute to the

city sky-high

the 2016 inclusion of China's currency

the yuan in the International Monetary

Fund's basket of currencies has caused

some speculation that Hong Kong could

put an end to its US currency pic some

analysts have made a long-term proposal

to repack the Hong Kong dollar to the

yuan as Hong Kong continues to integrate

into mainland China but the city's de

facto central bank a Hong Kong Monetary

Authority has said the Hong Kong dollar

remained pegged the US dollar for the

foreseeable future

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