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Untitled Document
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Hong Kong |
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The Currency of Hong Kong is the Hong Kong Dollar. The Financial Secretary along with the Secretary for Monetary Affairs is in charge of currency administration. (WCY 1984, p. 331). Both residents and nonresidents enjoy complete monetary freedom. (WCY 1984, p. 327)
The Hong Kong dollar was originally linked to the Pound Sterling. After the Sterling area was liquidated in 1971, the Hong Kong dollar was pegged to the U.S. dollar with a fluctuation limit. This regime was later changed onto a controlled, floating basis, until the Hong Kong dollar was pegged to the U.S. dollar again in 1983. The primary aim for adopting this peg was as an emergency measure to prevent the Hong Kong dollar collapsing in the midst of a political row between China and the United Kingdom over the future of the city. (Rajan and Siregar, 2002, p. 35)
Ever since 1983, Hong Kong adopted a Currency Board Arrangement (CBA) to fix the exchange rate at HK$7.8 per U.S. Dollar. Under the CBA, two note-issuing banks deliver to the Exchange Fund an equivalent amount of U.S. Dollar as backing for their Hong Kong Dollar note issues. The Exchange Fund, in turn, issues certificates of indebtedness denominated in Hong Kong Dollar. Similarly, the banks may redeem U.S. dollars from the Exchange Fund by delivering local currency at the same linked exchange rate. Other licensed banks wishing to acquire (or exchange) local currency notes may purchase (or sell) them against an equivalent amount of U.S. dollars at the linked exchange rate with one of the note-issuing banks.
In the aftermath of the Asian Financial Crisis, the HKMA introduced several measures with a view to strengthen the currency board arrangement, include an explicit Convertibility Undertaking to licensed banks to convert Hong Kong dollar balances in their clearing accounts into U.S. dollars at the fixed rate.
Resources of reference include:
1. World Currency Yearbook. (WCY)
2. IMF Annual Report on Exchange Arrangement and Exchange Restriction. (IMF)
3. Rajan, Ramkishen S. and Siregar, Reza (2002): "Choice Of Exchange Rate Regime: Currency Board (Hong Kong) Or Monitoring Band (Singapore)?", IPS (The Institute of Policy Studies) Working Paper, No. 12. |
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Date
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Changes
to the exchange rate regime
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Hong Kong Dollar per U.S. Dollar
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| 18 November 1967 | Following the cut in the British Pound, the Official Rate was reduced against the U.S. Dollar. (WCY 1984, p. 327) | 6.670 | | 22 November 1967 | The new rate was revised. (WCY 1984, p. 327) | 6.060 | | 15 August 1971 | Following the de facto devaluation of the U.S. Dollar, the Hong Kong Dollar, through its link to the Pound Sterling fixed at HK$14.5455=£ 1.00, began to appreciate against the American unit. (WCY 1984, p. 327) | | | 18 December 1971 | In the wake of the U.S. Dollar's de facto devaluation, the Official Rate, based on the unit's unchanged gold content, was realigned. (WCY 1984, p. 327) | 5.582 | | 23 June 1972 | With the floating of Sterling, the Hong Kong Dollar was also set free to depreciate in tandem. At the same time, the Sterling Area was liquidated. (WCY 1984, p. 327) | | | 6 July 1972 | The link to the Pound was severed, Hong Kong Dollar was pegged to the U.S. Dollar at an Official Rate of HK$5.65 per Greenback, representing a 1.2% devaluatin in terms of gold. An Effective Rate was also introduced based on a 2.25% fluctuation limit, creating a trade band. (WCY 1984, p. 327) | 5.523-5.777 | | 1 January 1973 | Hong Kong abolished all existing foreign exchange controls. (WCY 1984, p. 327) | | | 14 February 1973 | Following the U.S. Dollar devaluation, the Official Rate of the Hong Kong Dollar, based on the unit's unchanged gold content, was realigned to HK$5.085 per U.S. Dollar, with certain fluctuation limit. (WCY 1984, p. 327) | 4.971-5.199 | | 25 November 1973 | Hong Kong Dollar was placed on a controlled, floating basis. (WCY 1984, p. 327) | | | 25 November 1974 | Since then on, the authorities did not maintain the exchange rate for the Hong Kong Dollar within the previous official limits of HK$4.9706 and HK$5.1994 per US Dollar. (IMF 1976, p.219) | | | 23 January 1975 | The Exchange Fund (Amendment) Act, 1975 authorized the Exchange Fund to undertake forward exchange transactions. (IMF 1976, p.219) | | | 5 May 1975 | A legal tender coin with a face value of HK$1,000 was issued. (IMF 1976, p.219) But it is mostly kept by collectors and seldom circulated. (IMF 1997, p.378) | | | 1978 | The authorities did not maintain margins in respect of exchange transactions in Hong Kong and exchange rates for the Hong Kong Dollar were determined largely on the basis of demand and supply conditions in the exchange market. The authorities intervene only when necessary in order to smooth out exceptional fluctuations in exchange rates so as to maintain orderly conditions inthe exchange market. (IMF 1979, p.195) | | | 17 October 1983 | The Hong Kong Dollar was linked to the U.S. dollar. The two note-issuing banks must deliver to the Exchange Fund an amount in U.S. dollars that is equivalent to the local currency issued, as backing for their Hong Kong Dollar note issues. The Exchange Fund, in turn, issues certificates of indebtedness denominated in Hong Kong Dollar. Similarly, the banks may redeem U.S. dollars from the Exchange Fund by delivering local currency at the same linked exchange rate. Other licensed banks wishing to acquire (or exchange) local currency notes may purchase (or sell) them against an equivalent amount of U.S. dollars at the linked exchange rate with one of the note-issuing banks.
For other transactions, the exchange rate of the Hong Kong dollar is set in the exchange market at freely negotiated rates. However, the possibility for interest rate arbitrage and currency arbitrage, together with the capability of the Hong Kong Monetary Authority (HKMA) to intervene in the market, tends to keep the market rate in line with the linked rate. (IMF 1995, p.215) | 7.800 | | 1987 | The forward exchange markets were operated on private sector initiatives and the Government has no official role. (IMF 1988, p.246) | | | 5 September 1998 | The HKMA introduced several measures with a view to strengthen the currency board arrangement, include an explicit Convertibility Undertaking to licensed banks to convert Hong Kong dollar balances in their clearing accounts into U.S. dollars at the fixed rate of HK$7.75 per US$1. This convertibility rate will move from HK$7.75 to HK$7.80 by 1 pip (i.e., HK$0.0001) per calendar day starting from April 1, 1999. It would then take 500 calendar days to complete the move to the rate of HK$7.80, where it will remain. (IMF 1999, p.214-217). | | | 1 April 1999 | The issue and withdrawal of coins were settled against the U.S. dollar at the fixed rate of HK$7.80 per US$1. (IMF 2000, p.220) | |
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