HONG KONG/SHANGHAI (Reuters) – Hong Kong has no intention and sees no need to change the system that ties the city's currency tightly to the U.S. dollar and has ability to protect, Hong Kong's de facto chief executive said. the central bank said on Thursday.
Eddie Yue made the comments amid recent strength in the Hong Kong dollar, which surged to a 3-1/2-year high against the US currency last week, not far from testing the strong end of the system trading band.
Under the Hong Kong Linked Exchange Rate System (LERS), the financial hub's currency is limited to a range between 7.75 and 7.85 to the greenback, and the Hong Kong Monetary Authority (HKMA) is committed to intervening until the to maintain a band.
“Despite the recent interest in LERS and even speculation regarding possible geopolitical shocks, the Hong Kong dollar market has continued to operate smoothly according to the design of the LERS ,” Yue said in a statement posted on the HKMA website.
“And let me say it again, we have no intention and we do not see the need to change the LERS. “
The financial center has large foreign reserves of more than $420 billion, equivalent to about 1.7 times its monetary base, which Yue said is meant to “ensure the smooth operation of the LERS at all times” .
A series of factors, including seasonal funding shortages, purchases by mainland Chinese investors and dividend payouts by listed companies, contributed to tight liquidity in Hong Kong and underpinned the currency, sources said. -traders and analysts.
Yue said the HKMA was paying close attention to discussions about the exchange rate system, which has survived several economic cycles and several financial crises.
“As a small, open economy and a major international financial center, exchange rate stability is critical to Hong Kong,” Yue said, dismissing the idea that a strengthening Hong Kong dollar along with the greenback would hinder re- economic development of the city.
Analysts at Barclays (LON:) expects the Hong Kong dollar to remain near 7.75 per dollar in January, but look for it to weaken thereafter.
“We believe that global factors are likely to maintain sentiment and support, especially after the positive momentum from dividend payments by HK-listed companies and (as) IPO activity subsides,” they said in a note which was released this week.
“Onshore Hong Kong stock purchases may continue due to the lack of other investment options, but it would require more foreign participants to buy Hong Kong stocks to build HKD demand more sustainably.”
