Hong Kong's contact rate system will not fall

The reason why the market is worried about the exchange rate system is unsustainable

The main reason is that the regulation mechanism of the joint exchange system will be invalidated

In the past three months, the Hong Kong dollar exchange rate has frequently touched the guarantee of the weak recipe. Since May, the Hong Kong Financial Authority has followed the institutional arrangement of the Monetary Issuance Bureau to redeem the guarantee level at a weak recipe of $ 1 at HK $ 7.85. Reserve also decreased by $ 24 billion. This has once again triggered the market's concerns about the Hong Kong market, and even the pessimistic argument of the collapse of the exchange rate system (hereinafter referred to as the "Lianhui System").

Recently, Chen Maobo, the director of the Hong Kong Financial Secretary, and Yu Weiwen, president of the Hong Kong Financial Administration, said many times that Hong Kong does not need to change the Lianhui system. Hong Kong established the Lianhui system in 1983. After two optimizations in 1998 and 2005, it formed an institutional arrangement that set the Hong Kong dollar exchange rate box within the range of 7.75 to 7.85. It can be said that the change in the scale of the basic currency in Hong Kong is a by -product of stabilizing the exchange rate of Hong Kong dollars. The traffic and stock of their basic currencies must be fully supported by foreign exchange reserves.

This time the Hong Kong dollar triggered a strong similar similarity to the incentives of the weak recipe and in 2018, which occurred with the sharp goal of the US -Hong Kong interest difference. Due to the rapid interest rate hike of the Fed, the increase in interest rates in Hong Kong is relatively slow, making the US -Hong Kong spreads widened rapidly. After one and a half months, the Hong Kong dollar exchange rate transitions from a strong level to the weak side to ensure the level. The HKMA has begun to consume foreign exchange reserves from the market to Hong Kong dollars, which has caused banks to summarize the surplus rapidly, the market liquidity tighten, and accelerate Hong Kong's market interest rates. In fact, after 2005, the Hong Kong dollar exchange rate guaranteed that the level of the weak side was close to the Federal Reserve's interest rate hike cycle, and the US dollar exchange rate of the Hong Kong dollar and the US -Hong Kong interest margin was obviously correlated.

The reason why the market is worried that the contact rate system is difficult to sustain, mainly because the regulation mechanism of the joint exchange system will fail: if the market loses confidence in the Hong Kong HKMA's maintenance exchange rate within 7.85, even if Hong Kong's liquidity is tightened and interest rates have risen sharply, it cannot prevent it from stopping In a large amount of capital flow, it may lead to not enough foreign exchange reserves to deal with, causing the possible loss of the exchange rate system.

At present, the possibility of the Hong Kong Lianhui system is very small, mainly with four main reasons:

First of all, from the experience judgment of 2018, when the Hong Kong banking system summarizes the balance drop below 100 billion Hong Kong dollars, it will have a greater impact on the interest rate of the inter -bank market and trigger the bank raising loan interest rates. When the Hong Kong market interest rate converges with the US market interest rate, the depreciation pressure of the Hong Kong dollar will be significantly reduced. Secondly, the scale of the basic currency in Hong Kong is far greater than 1997/1998. If the amount of funds is not enough to increase the interest rate level of Hong Kong, it will not pose a strong threat to the exchange rate system. Third, the scale of Hong Kong foreign exchange reserves and the support of the Mainland can ensure the operation of the exchange rate system.

Finally, Hong Kong, as an important gateway to the outside world in Mainland China, requires the support of its international financial center status. Hong Kong has become a tier connecting the mainland of China and the global financial system with its closer to the court and independent regulatory agencies that are closer to the general law system. The Lianhui system for the Hong Kong dollar and the US dollar painting (to ensure that the Hong Kong dollar and the US dollar can be exchanged completely), which provides key support for Hong Kong's international financial center status. According to the statistics of Economists, the latest data show that 97 % of Hong Kong's foreign exchange transactions, 58 % cross -border loans and other banking instruments, 43 % cross -border derivatives and 37 % deposits are denominated in US dollars. Therefore, in order to maintain the status of Hong Kong's international financial center, we must maintain the operation of the exchange rate system.

This time the Hong Kong dollar triggered the guarantee of the weak side exchange guarantee, what really needs to pay attention to is two issues:

First, the impact on Hong Kong's economy. Hong Kong's market interest rates may cause the bank's preferential loan interest rate to rise more than 25bp. Since the beginning of this year, GDP has been negatively increased for two consecutive quarters. Compared with the economic fundamentals of the best preferential loan interest rate in Hong Kong in September 2018, the year -on -year growth rate of Hong Kong GDP was 2.6 %. Continuously fell and negative. The unemployment rate in Hong Kong has risen again since February this year, as of 4.7 % as of June, far higher than the 2.8 % maintained from March 2018 to July 2019. It can be seen that if the interest rate of Hong Kong's bank loan climbing has risen more than the last time, the negative impact on the Hong Kong economy may be more obvious.

Real estate (including property rights) is an important pillar of Hong Kong's economy, which accounted for 19.6 % of the actual GDP in Hong Kong in 2021. Historically, every bank's interest rate hike will cause Hong Kong house prices to change from positive year -on -year. Since February this year, the Hong Kong private residential price index has been negatively increased for five consecutive months.

In addition, as a highly open port city, import and export trade and logistics occupy an important position in the Hong Kong economy. Affected by factors such as the new crown epidemic, since March 2022, the export trade in Hong Kong has also shown large downward pressure. The three -month average export value of the overall export value has been adjusted for four consecutive months. The maximum month -on -month decline, while the proportion of trade and logistics industry in Hong Kong's GDP in 2020 reached 19.8 %. As a result, the downward pressure on Hong Kong's economy cannot be underestimated. Second, the status of the Hong Kong International Financial Center is facing competition from Singapore. Since 2017, Singapore's global asset management scale has exceeded the same caliber indicators in Hong Kong. With the expansion of its asset management scale, for international capital hoping to invest in other Asian countries, there may be a trend of transfer to Singapore in the future. This diversion effect may slow down the inflow of foreign capital and have a medium and long -term impact on the exchange rate of the Hong Kong dollar.

(The author is the chief economist of Ping An Securities)

Send 2022.8.29 Total Issue 1058 "China News Weekly" magazine

Magazine title: Hong Kong contact rate system will not fall

Author: Zhong Zhengsheng

Edit: Wang Xiaoxia

Operation editor: Xiao Ran

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