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Matthew Brooker

Don't Fret for Hong Kong's Dollar Peg Just Yet

The currency system is doing what it’s supposed to do, and there’s little sign of stress so far.

Hong Kong has endured much worse.

Hong Kong has endured much worse.

Photographer: Bertha Wang/Bloomberg

Hong Kong has undergone wrenching changes that were all but unimaginable little more than two years ago. The remaking of the city in the wake of pro-democracy protests in 2019 has touched upon areas such as freedom of speech and the legal system that are pillars of its standing as an international financial center. Yet if there is one aspect of this special administrative region of China that looks unlikely to change anytime soon, it is the currency peg to the dollar.

Tougher times may be coming, it’s true. The Hong Kong dollar has slid toward the weak end of its trading band against the U.S. currency for the first time in more than three years. The economic cycles of the territory and the U.S. are out of alignment. The Federal Reserve is contemplating aggressive interest rate increases to choke off inflation that reached 8.5% in March. Meanwhile, China’s economy is going through perhaps its most difficult period in three decades, battered by renewed Covid outbreaks, a collapsing property market and investor outflows driven by President Xi Jinping’s interventions in the private sector and support for Russia. The yuan has weakened sharply.