Hong Kong maintains local currency peg to dollar

Hong Kong's chief executive assured, in an excerpt from an interview released this Monday, that he will keep the local currency linked to the US dollar, despite the trade war between Washington and Beijing.

In an interview with Hong Kong daily South China Morning Post, John Lee Ka-chiu said the peg of the local dollar to the US currency has been “one of the key factors in the success” of the region.

Since 1983, even before the transition of administration from the United Kingdom to China, the Hong Kong dollar has been linked exclusively to the US currency, and can fluctuate in a range between 7.75 and 7.85 units per dollar.

This also means that the territory's financial regulator, the Hong Kong Monetary Authority (HKMA), follows the rises and falls of the benchmark interest rate imposed by the US Federal Reserve.

In May, the HKMA had to intervene in the market several times, buying a total of 16.7 billion US dollars (14.6 billion euros) to weaken the local currency.

This comes after the Hong Kong dollar hit the upper limit of its floating band, due to the appreciation of Asian currencies and increased investment in shares listed on the city's stock exchange.

In addition to foreign investors, mainland Chinese investors have also been buying more local shares, partly thanks to a mechanism launched in 2014 that links the stock exchanges of Hong Kong and Shanghai, China's "financial capital".

In an interview to mark the third anniversary of his administration, John Lee denied that the financial system depends solely on its peg to the US dollar.

The chief executive promised to create more financial products to reinforce Hong Kong's role as the world's biggest hub for business in mainland China's currency, the renminbi.

John Lee downplayed the HKMA's interventions and said the peg to the US dollar was always under pressure, especially in times of uncertainty.

The peg also affects the neighboring region of Macau, whose currency, the pataca, is pegged to the Hong Kong dollar.

John Lee rejected calls to end the peg of the local dollar to the US currency, made at a time of tariff conflict between China and the United States.

Washington imposed tariffs of 145 percent on Chinese goods, prompting Beijing to respond with similar tariffs of 125 percent on American goods.

In mid-May, the United States and China agreed to reduce tariffs to 30% and 10%, respectively, for 90 days, during which time the two countries are trying to negotiate a permanent agreement.

In another excerpt from the same interview, released on Sunday, John Lee assured that tensions between Beijing and Washington will not make the city adopt retaliatory measures, which would compromise its “DNA of success” and status as a free port zone.