Hong Kong’s US dollar peg faces fresh calls for review – but is change feasible?

The Hong Kong dollar's four-decade-old peg to the US dollar is under review after the Hong Kong Securities and Futures Professionals Association (HKSFPA) submitted recommendations for a potential shift. The proposal, aimed at gathering public feedback for the city's first-ever five-year plan, suggests exploring options such as using a basket of major currencies or gold.

However, financial analysts argue that the current system is likely to remain in place. The HKSFPA's recommendations aim to address financial pressures faced by local homebuyers and small businesses during recent rate hikes and to mitigate potential impacts from major dollar volatility or credit crises. While the proposal aligns with a broader global debate on de-dollarization and Beijing's push to expand the yuan's international use, market observers believe the recommendations face an uphill battle to reach the government's legislative agenda.

Most local financial professionals and economists continue to see the peg as essential for maintaining market stability and ensuring prosperity. They argue that a switch to a yuan peg would be rare and highly complex, and that exchange-rate stability is crucial for Hong Kong's financial markets. Allen Ding, chief economist at China Citic Bank International, emphasized that sudden monetary shifts could trigger market instability.

The existing peg is seen as a simple and transparent anchor that international investors understand well, providing Hong Kong with operational flexibility when tapping global markets. However, there is no evidence that a basket of currencies is superior to the US dollar, according to Tommy Ong, managing director of T.O. & Associates Consultancy.