Hong Kong's central bank has spent more in 2020 than in it did in 2009 to keep its currency peg after the financial crisis
- Hong Kong's central bank has intervened more than 40 times this year to maintain its peg to the US dollar.
- It has bought the equivalent of $19.6 billion dollars of its own currency this year, more than it did in the whole of 2009 after the financial crisis.
- The peg has been in place since 1983 and allows the Hong Kong dollar to trade in a strict band of roughly 7.8 Hong Kong dollars per US dollar.
- Analysts don't think the peg will be removed. One said: "Historically in 1997 when the economy shrunk by 10% and short-term rates and hiked up [around] 30%, the peg still survived. The peg is not in any danger of capitulating at this stage."
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Hong Kong's central bank intervened 40 times in 2020 so far to preserve its currency's peg to the US dollar, according to official data, but analysts are confident that the trading band will remain intact.
Data from the Hong Kong Monetary Authority shows that, so far this year, the de facto central bank has bought a net 152 billion Hong Kong dollars ($19.6 billion).
For context, the central bank has spent more between January and the first few days of September this year in propping up its currency than it did in the whole of 2009.
The currency peg has been in place since 1983, which keeps the Hong Kong dollar trading in a strict band around 7.8 Hong Kong dollars per US dollar.
Currency pegs allow smaller nations to plan longer term for spending than allowing for a free-float that might expose them to big hits to their finances, if their own currency fluctuates too sharply.
Because of its importance as a US dollar-trading hub, Hong Kong has strived to keep its currency strong and stable against the greenback.
Currently one dollar is roughly worth 7.75 Hong Kong dollars.
Giles Coghlan, chief currency analyst at HYCM, said a weakening US dollar is the main reason that caused the multiple interventions.
The US dollar has dropped sharply this year, mainly due to low interest rates and billions of dollars worth of stimulus relief.
The US dollar index, which reflects the performance of the dollar against a basket of currencies, is down almost 5% in the last six months.
In July tensions between the US and China ratcheted up after the White House reportedly threatened to remove the peg — risking widespread chaos in financial markets — in response to China passing a new security law that increases its grip over Hong Kong.
But analysts are convinced the currency peg, which has been the bedrock of Hong Kong's financial center, will still remain in place.
Jeffrey Halley, senior market analyst, Asia-Pacific at OANDA, said it would be "wishful thinking" that Hong Kong would abandon the peg.
He said: "Most of the volatility in the Hong Kong dollar is actually via the forward market."
Coghlan said: "Hong Kong wants to keep the peg as stable as possible if the currency remains stable. It is in Hong Kong's interests to keep peg within (the) band."
"Historically in 1997, when economy shrunk by 10% and short-term rates and hiked up [around] 30% and the peg still survived. The peg is not in any danger of capitulating at this stage," he said.