Hong Kong’s currency peg to the US dollar is unlikely to be a target of attack by US President Donald Trump, because it would not benefit the United States, according to a former American diplomat in the city.
Kurt Tong, the former US consul general who is now a partner at the business consultancy Asia Group, said delinking the currency would only undermine the status of the US dollar, and would be detrimental to American corporations, as it gained a lot of advantages from being used internationally.
He was speaking exclusively on Friday night, together with Secretary for Commerce and Economic Development Edward Yau Tang-wah, and Allan Zeman, the chairman of nightlife district developer Lan Kwai Fong Group, at the South China Morning Post’s webinar series, SCMP Conversations – Caught between the United States and China: Can Hong Kong’s economy thrive in uncertain times?
Tong said speculation over seeing the dollar peg removed had faded, and the White House was not interested in it happening.
“It’s practically very difficult and expensive … to actively undermine the confidence of another currency,” Tong said.
“The peg is a Hong Kong policy to stabilise its Hong Kong currency for international transactions. It would undermine confidence of the US dollar as the most secured currency for transactions.
“Why should the US take this much bigger step of trying to actively undermine the Hong Kong dollar or Hong Kong’s financial system?”
In his response to Beijing’s decision to impose the national security law on Hong Kong, Trump signed an executive order on July 14 revoking the city’s different and preferential treatments stipulated by the Hong Kong Policy Act of 1992.
At the time, the US president said Hong Kong would “now be treated the same as mainland China”, which meant there would be “no special privileges, no special economic treatment, and no export of sensitive technologies”.
The executive order did not mention limiting Hong Kong banks’ access to the US dollar payment system as a way of punishing China, which would undermine the currency peg system that has allowed the city to remain a global financial hub.
The Hong Kong dollar has been pegged to the US dollar since October 1983, when there was a crisis of confidence as the British and mainland Chinese governments negotiated the 1997 handover of the city.
Originally set at a rate of 7.8 per US dollar, the Hong Kong dollar has been allowed to trade between 7.75 and 7.85 per US dollar since 2005.
The currency peg is backed by the city’s foreign reserves of more than US$440 billion.
Any governments, including Hong Kong, can determine which currency to peg to and what exchange rate they want to fix at, but the US has the right to ban any lenders, or the Hong Kong Monetary Authority, the city’s de facto central bank, from trading the US currency.
As long as you’re going to be thinking anyway, think big.