London Daily

Focus on the big picture.
Saturday, Mar 14, 2026

Currency peg vital for Hong Kong’s status as global finance centre even as US dollar declines, says former monetary authority chief Joseph Yam

Yam, who helped set up the peg in 1983, still believes it is in the best interests of Hong Kong because it gives confidence to international investors. US unlikely to ‘weaponise’ the peg or capital markets as it would hurt itself in the process, says Yam

Hong Kong should hang on to its 37-year-old currency peg to the US dollar because a link to the world’s most used currency is the best option to maintain its role as an international financial centre, said the city’s longest-serving monetary authority chief.

Joseph Yam Chi-kwong, who helped set up the peg in 1983, still believes fixing the Hong Kong dollar to the greenback at 7.8 is in the best interests of Hong Kong because it gives confidence to international investors to come here to do business.

It marked the second time in a week that Yam – now an executive council member – has spoken out to shore up confidence in the peg and in Hong Kong as a reputable global finance hub. He gave a video interview on Monday, released by the Hong Kong Monetary Authority he headed between 1993 and 2009, on the same subject.



Over the years, critics have periodically called for the Hong Kong dollar to be decoupled from US monetary policy. Those calls have escalated recently amid a spike in US-China political tensions and fears that Washington may introduce measures of its own that would break the peg.

On Wednesday, Yam gave an hour-long speech and media interview via a Zoom conference arranged by the Our Hong Kong Foundation, a think tank established in 2014 by former Chief Executive Tung Chee-hwa.

“Tying the local dollar with the most important currency in the world is the most appropriate monetary policy for Hong Kong,” he said, rejecting the idea that the peg should be modified to link with a basket of currencies or the yuan.

Yam’s supportive voice comes after the recent decline of the US dollar and a sharp rise in the gold price led the US investment bank Goldman Sachs to warn on Tuesday that the US dollar’s reign as the world’s reserve currency is coming under threat.

The Hong Kong dollar strengthened to 7.7505 on Wednesday afternoon, putting it right at the strong end of the permitted trading band beyond which the HKMA steps in to intervene. This year, the HKMA has intervened 29 times and sold a total of HK$106.3 billion Hong Kong dollars to weaken the currency after hot money flooded in as investors chased mega IPOs.

The exchange rate is allowed to move within a trading band of 7.7500 to 7.8500. When it breaches either the upper or lower limit, the city’s de facto central bank, the HKMA, is mandated to either buy or sell the local currency to bring the exchange rate back within the band.

The Hong Kong dollar peg system is credited with sustaining Hong Kong’s economy during a number of major economic disasters including the Asian financial crisis and the severe acute respiratory syndrome epidemic in 2003. It remained intact even when the city was returned from British to Chinese rule in 1997.

While Yam agreed the US dollar and investment markets might be at risk of sharp declines, he insisted it would not affect the peg because it has happened in the past, and the system still worked smoothly.

He is also not worried about the US imposing sanctions that would damage the peg or the city’s capital markets. Washington has threatened to impose a penalty on Hong Kong and China in response to Beijing's enactment of the national security law last month, a move widely condemned as undermining the city’s autonomy.

Yam considers the new law essential to restore social order after months of damaging anti-government protests, and thereby protect Hong Kong’s image as an international financial centre.

While Hong Kong does not need Washington’s approval, the peg cannot work if the US cuts off the city’s government and financial firms from trading the US dollar. That, however, is viewed as a last resort that could trigger global financial turmoil, because Hong Kong is the third-largest US dollar trading centre worldwide, behind only the US and the UK.

“I hope clever politicians like Trump and Pompeo would not opt for the nuclear option,” Yam said.

Given the sheer size of the US financial system and dominance of the dollar, Yam said the US “has a powerful arsenal at its disposal”, but “deploying the powerful arsenal could well end up hurting itself badly.”

He therefore believes the possibility of the “weaponisation” of the financial system is low, with the US sanctions likely only to focus on certain individuals and firms.

The currency peg and the resilience of the city’s capital market is an anchor helping Hong Kong to weather its worst economic recession in decades. The city’s financial coffers comprise one of the world’s largest currency reserves, at US$445.9 billion as of the end of June.

The local government has handed out HK$300 billion (US$38.7 billion), or 10 per cent of economic output, to support an economy hammered by the Covid-19 pandemic and help residents survive the slump.

Yam described the rescue package as “entirely appropriate and affordable” but said there is room for more, when the figure is compared with the aid provided by some other regional governments – Singapore spent 20 per cent of gross domestic product on handouts, Thailand spent 13 per cent and Malaysia handed out 19 per cent.

“Hong Kong has zero debt,” he said, while its accumulated fiscal reserves amount to about HK$1.2 trillion (US$154.83 billion), he pointed out.

“The running of a large but temporary budget deficit would not erode the fiscal discipline in Hong Kong that has underpinned its status as an international financial centre.”

For Hong Kong to move forward after the pandemic, he said the Greater Bay Area project would be the key. Beijing unveiled the blueprint in February last year for the ambitious plan to integrate Hong Kong, Macau and nine Guangdong cities into an economic powerhouse.

To make it successful, Yam said it needs to encourage more capital flow. He suggests allowing Hong Kong banks to accept deposits and lend money in the Greater Bay Area’s mainland cities, and vice versa, while Beijing ring-fences the capital flow within the region to avoid the risks spreading to other parts of the country.

Newsletter

Related Articles

0:00
0:00
Close
Middle East War Highlights Strategic Importance of Strong UK–Ireland Cooperation
Weak Growth Signals UK Economy Was Faltering Even Before Middle East Energy Shock
Marks & Spencer Tops UK Fashion Retail Rankings as Most Considered Brand
United States Launches Trade Investigation Into Allies Over Forced Labour Practices
United States Launches Trade Investigation Into Allies Over Forced Labour Practices
Russia Accuses Britain Over Storm Shadow Strike as London Reaffirms Ukraine’s Right to Self-Defence
Russia Accuses Britain Over Storm Shadow Strike as London Reaffirms Ukraine’s Right to Self-Defence
Royal Navy to Acquire Twenty Uncrewed Surface Vessels for Autonomous Warfare Testing
Russia Summons British and French Envoys After Ukrainian Storm Shadow Strike on Strategic Facility
Starmer Confirms Britain Will Maintain Sanctions on Russia Despite U.S. Policy Shift
UK Moves to Refine AI Definition in Investment Security Reform
UK Economy Stalls in January as Growth Unexpectedly Falls to Zero
Asian Energy Security Tested as Strait of Hormuz Disruption Threatens Oil Supplies
Iran Sets Three Conditions for Ending Regional War as Diplomatic Efforts Intensify
Tesla Secures Approval to Supply Electricity Directly to Homes Across Britain
Prince William Delivers Tribute to Australia’s Naval Alliance Amid Renewed Royal Spotlight on the Country
UK Foreign Secretary Travels to Saudi Arabia to Reinforce Support for Regional Allies
Putin’s ‘Hidden Hand’ May Be Assisting Iran in Conflict With Trump, UK Defence Secretary Warns
UK Sets April Deadline for Tech Platforms to Strengthen Online Protections for Children
Elon Musk Moves Into Britain’s Energy Market as Tesla Wins Licence to Supply Power
UK Watchdog Warns Fuel Retailers Against Profiteering Amid Iran War Price Surge
Report Claims Iran Used UK Charity Network to Expand Influence
United States and United Kingdom Establish Joint Standards for Counter-Drone Technology
Iran May Be Laying Naval Mines in Strait of Hormuz, UK Warns Amid Escalating Gulf Tensions
US Deploys Bunker-Buster Bombs to UK Airbase as Iran Conflict Intensifies
British Troops in Iraq Intercept Iranian Drones Targeting Coalition Base
Release of Mandelson Files Raises Tensions as UK Seeks Stable Relations With Donald Trump
UK Documents Reveal Starmer Was Warned About Mandelson’s Epstein Links Before Ambassador Appointment
Nearly Five Hundred UK Mortgage Deals Withdrawn in Two Days as Market Volatility Forces Lenders to Reprice
Three Cargo Ships Hit Near Iran as Attacks Spread to Strategic Strait of Hormuz
Why British Police Repeatedly Declined to Investigate Jeffrey Epstein’s UK Links
UK Parliament Ends Hereditary Seats in House of Lords, Closing Chapter on Centuries of Aristocratic Lawmaking
EU and UK Urge Israel to Act Against Rising West Bank Settler Violence Amid Regional Tensions
US Senator John Kennedy Says Keir Starmer Should Not Be Trusted for Military Advice Amid Iran War Debate
UK High Court Rejects Attempt to Revive Terrorism Charge Against Kneecap Rapper
Revolut Secures Full UK Banking Licence After Multi-Year Regulatory Wait
Kentucky’s Bench Boost Powers Wildcats Past LSU in SEC Tournament Opener
British Couple Die After Being Pulled From Water at Australian Beach During Family Visit
Global Energy Agency Announces Record Release of 400 Million Barrels to Stabilize Oil Markets Amid Hormuz Disruption
British Airways Suspends UK Repatriation Flights as Middle East Travel Disruption Deepens
US Forces Prepare Ordnance at RAF Fairford as Strategic Bombers Deploy for Middle East Operations
Nigel Farage Faces Criticism After Saying Britain Should Stay Out of Iran War
Landmark UK Trial Begins Over Sony’s PlayStation Store Pricing
UK High Court Rejects Bid to Challenge Britain’s Chagos Islands Agreement With Mauritius
Finnish Duo Triumphs in England’s Annual Wife-Carrying Race, Winning a Barrel of Ale
How U.S. and UK National Security Strategies Are Reshaping the Global Business Landscape
Green Party Gains Momentum as Labour Shifts Toward the Political Centre
Royal Navy Destroyer HMS Dragon Sets Sail for Eastern Mediterranean as Regional Tensions Rise
UK Homebuilder Persimmon Warns Iran Conflict Could Dent Property Buyer Confidence
Roman Abramovich Signals Legal Fight if UK Seeks to Seize Chelsea Sale Funds
×