Hong Kong defends dollar, adding pressure
The dollar peg has helped Hong Kong weather multiple economic storms
HONG KONG Hong Kong yesterday said it had stepped in to prop up its dollar, the first intervention since 2019 and a move that will add pressure at a time when the city's economy is struggling.
The Asian financial hub pegs its own currency to the US dollar, allowing it to trade within a range of 7.75-to-7.85 to the greenback.
The Hong Kong dollar had been hovering at the lowest end of the threshold in recent weeks and crossed over late Wednesday in New York trade.
The Hong Kong Monetary Authority said it then intervened, calling the move "normal operations in accordance with the design of the LERS (linked exchange rate system)".
Bloomberg News said the HKMA released some HK$1.59 billion (US$203 million) to prop up the currency.
The dollar peg has helped Hong Kong weather multiple economic storms, including emerging more swiftly than many others from the 1997 Asian financial crisis, and turned the city into one of the world's most successful finance hubs.
The administration keeps huge foreign currency reserves to ensure stability.
However the pressure on the local currency, caused mostly by capital outflows fuelled by rising interest rates in the US, comes at a difficult time for the city.
While much of the world is emerging from the coronavirus pandemic, Hong Kong remains
stuck with a lighter version of mainland China's ZERO-COVID strategy.
The restrictions, including mandatory hotel quarantines and barely any international travel, have hammered the economy and led an exodus
of local and international talent.
The city also has little choice but to follow the Federal Reserve's hawkish rate hikes because of its dollar peg, meaning costs of borrowing are rising despite the economic outlook looking glum.