Opinion: Why Hong Kong Won’t Break Its U.S. Dollar Peg

From May to late August, the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, drained more than HK$170 billion ($21.7 billion) from the interbank market to maintain the currency’s peg to a strengthening U.S. dollar, leading its foreign exchange reserves to fall by $24 billion.

Such support has sparked concerns among market observers about the future of the HKMA’s mechanism for maintaining the value of the Hong Kong dollar (HKD) against the greenback — the Linked Exchange Rate System (LERS). However, in our view, the possibility that the peg will be broken remains a small one.