US Dollar / Hong Kong Dollar - USD/HKD

After being linked for a long time to the pound sterling, which was linked to the fixed parities of the other world great currencies within the framework of the Bretton Woods Agreements of 1944, the Hong Kong Dollar (HKD) was first indexed on the American Dollar (USD) from 1972 to 1974 on the basis of an exchange value of USD/HKD = 5.65 (revised in 5.085 in 1973).

This was followed by a long period (1974-1983) during which the Hong Kong dollar was freely negotiated on the exchange market, its external value only depended on the supply and demand under the floating exchange rates regime.

On October, 17th 1983, the Hong Kong monetary authorities reestablished a fixed indexation at USD/HKD = 7.80 and created the « Currency Board » which controls the exchange movements and the external value of the HKD.

The banking interest rates done in Hong Kong followed the American ones.

In the context of a re-valuation of the yuan renminbi put a speculative pressure on the HKD, the Hong Kong monetary authorities (an institution. that has de facto the competences of a central bank) decided to modify the “peg” of the Hong Kong dollar and authorize a fluctuation band of the USD/HKD cross between 7.75 and 7.85.

In May 2005, we saw the limit of 7.80 increased by 100 pips (0.01) each week and reach 7.85 after five weeks.

All this may be attributed to the decrease of the exchange rate (so an increase of the HKD) that the removal of the limit of the fluctuation fixed by the “Currency Board” completely plays its role, since we have the exchange value of the USD/HKD at 7.7533 in October 2005, the level the currency will keep until May 2006 (USD/HKD = 7.7532).

In July 2006, a small depreciation of the Hong Kong dollar slowly occurred (USD/HKD = 7.7907) and this depreciation (and increase of the rate) continued until July 2007, with an higher level USD/HKD = 7.8297.

Decreased by 7.7510 in October 2007 (a true collapse inside the authorized peg), the exchange rate USD/HKD increased above 7.80 in 2008, then stabilized from November 2008 at the highest of the HKD (lowest of the cross) with a value USD/HKD = 7.75.