China’s central bank can provide U.S. dollars to back Hong Kong’s currency peg should the Trump administration impose sanctions on the territory, according to the city’s financial chief.
The dollar peg is underpinned by about $440 billion of foreign-exchange reserves, which is more than two times the city’s money in circulation, Financial Secretary Paul Chan said in an interview with China Central Television on Wednesday. If needed, Hong Kong can tap a currency swap line with the People’s Bank of China, which will cover Hong Kong dollars and the greenback, he said.
Top officials have been keen to reassure investors that the 36-year-old dollar peg remains secure regardless of how the U.S. responds to Beijing’s controversial plan to impose national security legislation on Hong Kong. Banks and money exchange shops have seen queues in recent days as residents are looking to open offshore accounts or get hold of foreign currencies, according to local media reports.
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Hong Kong linked its currency to the U.S. dollar in 1983, when negotiations between Beijing and the London over Hong Kong’s return to Chinese rule spurred an exodus of capital. U.S. Secretary of State Michael Pompeo said Sunday that the United States now has no basis to treat Hong Kong more favorably than mainland China.
The Hong Kong dollar was little changed at HK$7.7503 against the greenback as of 6:12 p.m. local time, close to the strong end of its trading band.
The peg was introduced before the passage of U.S.-Hong Kong Policy Act in 1992 and hence it’s not a special privilege but a decision made entirely by the city, Eddie Yue, the head of the Hong Kong Monetary Authority, wrote in a blog on Tuesday. Yue stressed that there have been no significant fund outflows and no shortage of U.S. dollar banknotes.
Under the U.S.-Hong Kong Policy Act of 1992, the president is empowered to suspend the territory’s special trading privileges at any time through an executive order. The law covers the whole facet of the relationship, from trade to recognizing passports to rules that affect air travel, shipping and investment. It even allows for U.S. dollars to be freely exchanged with Hong Kong dollars, which if revoked would amount to what some analysts have called the “nuclear option.”
Chan also told CCTV on Wednesday that the linked exchange rate doesn’t require any approval from foreign country, without specifying which. He said Hong Kong will definitely not impose capital controls.
This article was originally posted on finance.yahoo.com/news/.