Why Hong Kong’s Central Bank Intervened and Should We Worry?

After buying Hong Kong dollars for the first time since 2005 in April and May, Hong Kong’s central bank is at it again. A long slide in the local currency took it to the lower end of its trading band against the U.S. dollar. The Hong Kong Monetary Authority has lifted its spending to defend the local dollar to more than $9 billion. That’s raising questions about how long this can continue and the implications for the city’s finances.

Not for now. The central bank had $432 billion of foreign reserves as of end-July (seven times the city’s money in circulation), so the interventions so far only accounted for about 2 percent of the total. The HKMA and the city’s government are resolute about maintaining the dollar peg that’s been in place for 35 years. What might rock the boat would be massive speculative attacks on the currency, as experienced in 1997. But even then, the central bank held sway.