Hong Kong steps in to prop up its dollar

Hong Kong steps in to prop up its dollar

Hong Kong said on May 12 it had stepped in to prop up its dollar, which is the first intervention since 2019 and 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 from 7.75 to 7.85 to the greenback.

The Hong Kong dollar had hovered near the lowest end of the threshold in recent weeks and crossed over late on Wednesday in New York trade.

The Hong Kong Monetary Authority HKMA then intervened, calling the move normal operations in accordance with the design of the LERS linked exchange rate system. Bloomberg News said that 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 quickly than many others from the Asian financial crisis in 1997, and turned it into one of the world's most successful finance hubs.

The government keeps huge foreign currency reserves in order to ensure stability.

The pressure on the local currency is mostly caused by capital outflows fuelled by rising interest rates in the United States, and comes at a difficult time for the city.

Hong Kong is stuck in a lighter version of China's zero-COVID strategy, although much of the world is emerging from the coronaviruses epidemic.

The restrictions, including mandatory hotel quarantines and barely any international travel, have hammered the economy and resulted in an exodus of local and international talent.

The city has little choice other than to follow the Federal Reserve's hawkish rate hikes because of its dollar peg, so costs of borrowing are rising despite the economic outlook looking glum.