London Daily

Focus on the big picture.
Friday, Sep 11, 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
John Lewis Partnership Loss Widens to £124 Million
UK Government to Put White Working-Class Social Mobility at Centre of Equality Policy
McLaren Plans £450 Million Technology Investment Creating 1,000 UK Jobs
UK Chancellor Faces Calls for Wealth Taxes and Public Ownership in Autumn Budget
English Mayors to Gain Powers to Impose Uncapped Overnight Tourist Taxes
JPMorgan’s Jamie Dimon Warns UK Government Against Bank Windfall Taxes
UK Air Traffic Control Outage Cancels More Than 2,000 Flights
UK Imposes Trade Ban on Israeli Settlements in the West Bank
UK Borrowing Costs Surge as Middle East Tensions Push Long-Term Gilt Yields to Highest Since 1998
Buckingham Palace Says Prince Harry and Meghan Will Not Resume Official Royal Duties
UK Treasury Faces Calls to Scrap £100,000 Childcare Support Threshold
Trades Union Congress Urges Labour Government to Rewrite Migration Policy
Riot Police Deployed After Anti-Migrant Protests Turn Violent in Portsmouth
UK Considers Replacing Some Disability Cash Payments With Direct Services
JPMorgan’s Jamie Dimon Warns UK Chancellor Against Higher Banking Taxes
UK Announces New Sanctions Targeting Israeli Settlements in West Bank
Metropolitan Police Investigate Alleged Illegal Donations to Reform UK
UK Charges Wiltshire Man With Assisting Russian Intelligence
UK Orders Urgent Review After Air Traffic Failure Cancels More Than 2,000 Flights
Merz Rebukes AfD Expansion in Saxony-Anhalt
King Charles Confirms Prince Harry and Meghan Will Remain Private Citizens
Labour Selects Former Child Refugee for By-Election in Keir Starmer’s Former Seat
Foreign Private Equity Accelerates Takeovers of London-Listed Industrial Companies
NHS Maternity Care Faces Scrutiny Over Support for Mothers After Caesarean Births
BBC Warns Staff Strikes Are Likely Amid Job Cuts and Programme Cancellations
English Housing Affordability Improves to Best Level in More Than a Decade
UK Health Commission Proposes Framework for Wider AI Adoption Across NHS
Labour Faces Pressure for Wealth Tax Ahead of Autumn Budget
Metropolitan Police Open Criminal Investigation Into Alleged Foreign Donations to Reform UK
UK Police Deploy Riot Officers After Anti-Immigration Unrest in Portsmouth and Dover
UK Defends Sanctions on Israeli Settlements Despite Diplomatic Retaliation
UK Air Traffic Control Failure Cancels More Than 1,000 Flights and Disrupts 65,000 Passengers
Compass Urges £10 Million Wealth Tax and Public Ownership Ahead of UK Autumn Budget
UK Government’s Devolution Plans Face House of Lords Scrutiny
Maldives Seeks New Chagos Sovereignty Talks With UK Prime Minister Andy Burnham
UK Airports Face Continuing Disruption After National Air Traffic Control Failure
UK Bans Imports From Israeli Settlements and Expands Sanctions on Iran
British Chambers of Commerce Forecasts UK Growth of 1% as Investment Remains Weak
UK Suspends Local Government Reorganisation Decisions and Cancels Planned Shadow Authority Polls
UK Parliament Opens Inquiry Into Gaps in Climate Change Preparedness
Andy Burnham and Xi Jinping Hold Talks on Trade, Security and British Consular Cases
UK Joins France, Canada and Other Nations in Measures Against Israeli West Bank Settlements
UK Announces New Sanctions Targeting Iranian Nuclear and Military Networks
British Chambers of Commerce Calls for Business Rate Reform and Productivity Support
UK Farmers Warn Dry Summer Could Reduce Crop Yields and Push Up Food Prices
UK Rail Networks Hit by Widespread Delays After Major Signalling Failures
Matt Clifford Resigns as ARIA Chair After Conflict-of-Interest Scrutiny
UK and France Say Joint Border Operations Have Prevented More Than 48,000 Irregular Channel Crossings
UK Core Inflation Remains Above Expectations as Utility and Commodity Costs Stay Elevated
Jaguar Land Rover Considers Up to 4,000 UK Job Cuts Amid Automotive Industry Pressure
×