The Hong Kong dollar fell to 7.85 against the US dollar yesterday, hitting the weak-side convertibility undertaking. The Hong Kong Monetary Authority (HKMA) finally 'drew its sword,' intervening to purchase Hong Kong dollars for the first time in thirteen years, marking the start of the defense of the Hong Kong dollar.
Between Thursday night and Friday morning, Hong Kong time, the Hong Kong Monetary Authority entered the market twice to purchase a total of HK$3.258 billion. This is the first time the HKMA has intervened in the market to buy Hong Kong dollars to maintain the stability of the Linked Exchange Rate System since the bilateral convertibility undertaking was established in 2005.
HKMA Chief Executive Norman Chan stated in a press release, 'This is the first time the market has triggered the HKMA's "weak-side convertibility undertaking" since the HKMA introduced three measures to optimize the Linked Exchange Rate System in 2005, including moving the "weak-side convertibility undertaking" to the 7.85 level.'
'I reiterate that the HKMA will buy Hong Kong dollars and sell US dollars at the 7.85 level to ensure that the Hong Kong dollar will not be weaker than 7.8500. This is the design and normal operation of the Linked Exchange Rate System,' he said.
Norman Chan also indicated that depending on capital flows, the weak-side convertibility undertaking might be triggered again in the future, but the HKMA has sufficient capacity to maintain the stability of the Hong Kong dollar exchange rate and cope with large-scale capital flows.
Under the Linked Exchange Rate System, the exchange rate of the Hong Kong dollar against the US dollar is HK$7.80 to US$1. In May 2005, the HKMA established a bilateral convertibility undertaking, setting the strong-side and weak-side convertibility undertaking levels at HK$7.75 and HK$7.85 respectively, allowing the two-way convertibility undertaking to operate symmetrically around the linked exchange rate of HK$7.80.
When the Hong Kong dollar exchange rate hits the 7.85 weak-side convertibility undertaking level, if a bank requests the HKMA to buy Hong Kong dollars, the HKMA will purchase Hong Kong dollars from the requesting bank at the weak-side convertibility undertaking rate of HK$7.85 to US$1. This triggers the weak-side convertibility undertaking, ensuring that the Hong Kong dollar exchange rate will not be weaker than 7.85.
At the Worldway Wealth Club, we are committed to enriching your global financial investment perspective and advocating for a high-end, international quality lifestyle. With twenty years of professional experience in top-tier asset allocation, we strive to build an international-quality elite business exchange circle for you, who are at the pinnacle of the pyramid. Consultation Hotline: 400-186-0266
