The Hong Kong Dollar has survived the territory’s return to China in 1997 and remains one of the top 10 most traded currencies in the world. The city’s importance as a trading port and a gateway to China ensures there still remains plenty of demand for the currency throughout the world.
The HKD was first introduced in the 1930s when both Hong Kong and China were coming off the silver standard (the value of their currencies had been supported by silver). The Hong Kong dollar was first pegged to the US dollar when the British pound (GBP) was devalued in 1967, but it was floated freely with no peg between 1972 and 1983. The Hong kong dollar continues to trade within a formal range against the US dollar, which means its overall value will be affected by the fortunes of the USD.
As part of the Basic Law agreed by Britain and China, Hong Kong retains control over its currency. China has respected this, even though some famous economists predicted that the currency would not long survive Hong Kong’s return to Chinese jurisdiction. Hong Kong’s ongoing success as a trading centre and high levels of personal savings mean that its currency has managed to survive a number of major crises, including the Asian financial meltdown in 1997-98, and the SARS epidemic in 2002-03.
The Hong Kong government remains committed to intervening in financial markets in the event of crises, and to support the currency, and in future crises it is not inconceivable that China itself would commit funds to support the HKD. Some hedge fund managers and other major global investors feel that the HKD should be abolished if China’s currency, the reniminbi, is ever floated.