WASHINGTON, July 8 — US President Donald Trump’s top advisors weighed proposals to undermine the Hong Kong currency’s peg to the US dollar, Bloomberg reported, citing people familiar with the matter, though the idea did not appear to have gained traction.
The proposal to strike against the Hong Kong dollar peg, possibly by limiting the ability of Hong Kong banks to buy US dollars, was raised as part of broader discussions among advisers to Secretary of State Mike Pompeo, Bloomberg’s report yesterday said.
Undermining the peg was seen by some advisors as one way to hit back at China for its moves to whittle away at Hong Kong’s political freedoms, the report said.
Other administration members pushed back against the proposal, worrying that such a move would only hurt Hong Kong banks and the United States, not China, sources told Bloomberg. The idea also was not elevated to White House’s senior levels, the report said.
The report will increase speculation over the stability of the 36-year-old exchange rate peg.
Discussions about the peg’s fate had already been swirling after Beijing imposed a national security law on Hong Kong, leading Washington to begin withdrawing some privileges it accords to the city.
Hong Kong Finance Secretary Paul Chan said last month there were no plans to change the peg to the US dollar.
Market watchers are pondering what measures could be implemented to undermine the peg and what the fallout would be.
Analysts at broker Hamilton Court FX predicted this could be done by reducing or rescinding swap lines, curbing Hong Kong authorities’ ability to buy and sell dollars in order to keep the currency within its defined trading range.
Commerzbank analyst Hao Zhou called it a “low-possibility” event but with risk of huge market impact.
“The idea of sanctions, which limits certain entities to get access to the US dollar, consequently will threaten the HKD peg if markets speculate that the HKMA (Hong Kong Monetary Authority) needs to scrap the current regime at some point,” Zhou told clients.
The Hong Kong dollar did not budge on the news, trading at 7.75 against the greenback, near the upper end of the peg’s range. Hong Kong dollar forward points up to three-month maturities were trading marginally higher.
A top priority for the US administration has been to find ways to punish banks based in Hong Kong, particularly HSBC Holdings Plc, according to the Bloomberg report.
London-listed shares in HSBC tumbled as much as 4.2 per cent today while Standard Chartered slipped 2.4 per cent. Both lenders have come into the US cross-hairs after backing China’s national security law last month.
The US Treasury, State Department and the White House did not immediately respond to requests for comment.
HSBC and Standard Chartered declined comment on the report. — Reuters
