Answer to Question #39939 in Finance for Katie

Question

Should Hong Kong maintain its peg to the US dollar or should it change its monetary policy and freely float? Why?

Answer 1

Stuart Gulliver, chief executive of HSBC, Hong Kong’s biggest bank and one of the three lenders licensed to print local bank
notes, caused something of a stir last month when he questioned the peg, even though he stopped short of suggesting it should be broken any time soon.

“If Hong Kong was to review the Hong Kong dollar peg… it would be better to be revised to some kind of managed float with a basket of currencies that reflect the trading partners of Hong Kong, rather than choosing either a complete free float or to peg it to another currency,” Mr Gulliver said at an HSBC news conference.

“All options, including linking the Hong Kong dollar to the US dollar or a basket of currencies, or even letting the Hong Kong dollar float freely, have their own pros and cons.”

However, remaining pegged to the currency at the heart of the global monetary system remains the best option for Hong Kong and the government has “ no intention” of changing things.