This is how much Hong Kong has Spent this Month to Defend Currency Peg

Hong Kong dollar
Image: RSMcLeod/ iStock

The Hong Kong Monetary Authority has already spent HK$7.4 billion (US$1 billion) this month to purchase the local currency to defend the peg, after having bought HK$2.01 billion (US$256 million) on Monday.

The city’s relatively lower interest rate encourages carry trade. One-month rates in Hong Kong were at 1.57% on Monday, versus 2.48% in the US.

The Hong Kong dollar was last at HK$7.8498 per US dollar, near HK$7.85—the weak end of the trading band.

The local currency hit its 35-year low at 7.8500 per greenback in April 2018.

The de facto central bank intervened several times last year, having more than halved the aggregate balance of interbank liquidity, which is now just over HK$70 billion (about US$9 billion).

However, there's no reason for the city to worry because it has more than US$434.5 billion of foreign reserves, which is among the top 10 globally according to IMF numbers.

At the same time, Hong Kong has more than HK$1 trillion (US$127 billion) of exchange fund bills outstanding, which allows the city to inject cash by allowing that debt to mature.