HKD Peg: A Decades-Long Anchor in Turbulent Markets

The Hong Kong dollar has been pegged to the US dollar since October 1983, when it was trading at a record low of HK$9.60 per dollar due to market uncertainties surrounding the 1997 handover negotiations between China and Britain.

The Linked Exchange Rate System was introduced to stabilize the currency, with a fixed rate of HK$7.80 per dollar. In May 2005, a trading band was implemented, allowing the Hong Kong dollar to fluctuate between HK$7.75 and HK$7.85.

The Hong Kong Monetary Authority (HKMA) intervenes in the market to maintain the currency's peg by buying or selling Hong Kong dollars when necessary. This is made possible by a war chest of around HK$4.463 trillion, one of the world's largest foreign exchange reserves held in the city's Exchange Fund.