#Newspaper
US-China spat puts future of Hong Kong dollar in the spotlight
//Hong Kong has become a focal point in tensions between the US and China, which means that the linked exchange-rate system in place for the past few decades — tying the local dollar to the US dollar — is also in the spotlight.
//The head of the Hong Kong Monetary Authority, the city’s de facto central bank, told the Financial Times recently that the task of defending the Hong Kong dollar has become easier in a world of rock-bottom interest rates.
//The Hong Kong dollar came under fierce pressure too.
//These days, the gap between three-month US and Hong Kong rates is about half a percentage point, which means the incentive for holding the local currency is small.
//if the link were to come under sustained pressure, and higher interest rates proved inadequate to stem outflows, the HKMA might not look to the US Federal Reserve to supply a flow of US dollars.
//That Hong Kong would rely on China rather than the US for support in maintaining the level of the Hong Kong dollar is a sign of the politicisation of central banks, as the stand-off between Beijing and Washington endures.
//In that context, the US central bank would be “crazy” to allow a drawdown of US dollars to the HKMA “without permission from the US Treasury”
//confidence in the system does not depend simply on the weapons that the HKMA is able to deploy... In the past, the strength of the exchange-rate system was ultimately about confidence in the future of Hong Kong as the meeting ground between the worlds of Western capitalism and so-called socialism with Chinese characteristics.
//But as demonstrated this week by the new national security law for Hong Kong, hurriedly approved by Beijing, it is now very much a Chinese city.
Full Article: Financial Times, (01-Jul)
#HongKong #Economic #exchangerate
#US #China #NationalSecurityLaw #HKMA
US-China spat puts future of Hong Kong dollar in the spotlight
//Hong Kong has become a focal point in tensions between the US and China, which means that the linked exchange-rate system in place for the past few decades — tying the local dollar to the US dollar — is also in the spotlight.
//The head of the Hong Kong Monetary Authority, the city’s de facto central bank, told the Financial Times recently that the task of defending the Hong Kong dollar has become easier in a world of rock-bottom interest rates.
//The Hong Kong dollar came under fierce pressure too.
//These days, the gap between three-month US and Hong Kong rates is about half a percentage point, which means the incentive for holding the local currency is small.
//if the link were to come under sustained pressure, and higher interest rates proved inadequate to stem outflows, the HKMA might not look to the US Federal Reserve to supply a flow of US dollars.
//That Hong Kong would rely on China rather than the US for support in maintaining the level of the Hong Kong dollar is a sign of the politicisation of central banks, as the stand-off between Beijing and Washington endures.
//In that context, the US central bank would be “crazy” to allow a drawdown of US dollars to the HKMA “without permission from the US Treasury”
//confidence in the system does not depend simply on the weapons that the HKMA is able to deploy... In the past, the strength of the exchange-rate system was ultimately about confidence in the future of Hong Kong as the meeting ground between the worlds of Western capitalism and so-called socialism with Chinese characteristics.
//But as demonstrated this week by the new national security law for Hong Kong, hurriedly approved by Beijing, it is now very much a Chinese city.
Full Article: Financial Times, (01-Jul)
#HongKong #Economic #exchangerate
#US #China #NationalSecurityLaw #HKMA