Time to End the HKD Peg?

As the greenback continues to slide, pressure is building on this 29-year-old currency peg. One banker recently described the Hong Kong dollar to me as the ultimate put option on the U.S. dollar. The thinking is that if the dollar keeps going lower, authorities will be forced to de-peg under an avalanche of inflation.

This column has highlighted how Hong Kong’s currency regime has looked vulnerable, most recently after the government’s unexpected U-turn on cash giveaways in its budget. ( See March 6 column. ) Policy risk is now firmly in the spotlight. If a weak government can cave in on its budget, what next — perhaps it will also roll over on the currency peg?

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Posted by Wob Lee (772 days ago)

Why do people think the only option is to de-peg?????

Posted by Ed (772 days ago)

Lets say Bernanke goes ahead with QE3... and the USD plunges against most currencies... taking the HKD down with it...

Inflation would go through the roof (although if the USD plunges I wonder if that might be the least of our worries... PIMCO world's biggest bond fund is betting on a US default...)


What other options would the HK govt have other than dropping the peg... and perhaps re-pegging to another currency(s)

Posted by Wob Lee (772 days ago)

The Hk govt simply maintains the peg (which provides certainty) but revalues the HK dollar to the US dollar by revising the peg to say 1USD to 6HKD (thus solving the inflationary pressures).

This was done once before when the initial HKD to USD peg was 10 to 1 but soon revised to 7.8 to 1 to better reflect the value of the HKD.

The time to remove the peg altogether will be when the Yuan becomes a fully convertible currency, and when that happens there will be no need for a separate HKD.

Posted by Oly88 (770 days ago)

I agree. Re-peg it at 6 or 5 or something, so my flat is worth 25% more. Yeah baby!

Posted by Wob Lee (769 days ago)

worth 25% more relative to what ???? the HKD, the USD, gold, oil, rice, oh wait, could it be the last transaction pice in the market, yeah that must be it!

my, my you do seem rhater mixed up about hsi whole finance thing!

Posted by Oly88 (769 days ago)

This thread is about the HK$ peg to the US$, not the price of gold, oil, rice or the hsi.

Please follow the discussion...

Posted by Loyd Grossman is Miss Venezuela (769 days ago)

Float the currency. HK is big enough to stand on its own feet now. The US$ peg means interest rates are often out of step with the HK economy - whic has catastrophic implications. Look what happened between in 1997 and now in Ireland.

Posted by Wob Lee (769 days ago)

ermm, following the discussion is not the problem, following your argument is!

why will a revision of the HK-US peg help your house in HK (I presume its in HK) to go up by 25% ?