(Bloomberg) -- Debate over Hong Kong’s currency peg to the U.S. dollar will probably prove irrelevant in time, according to foreign-exchange veteran Stephen Jen.
On the one hand, the city is bound to see the peg as an important symbol amid questions about its ability to govern itself, Jen says. And on the other, if it does integrate more tightly with mainland China, the resultant increase in use of the yuan in the city would make the Hong Kong dollar peg a side issue.
“I do not believe the Hong Kong dollar peg will be broken, because the logic for its durability is very different from the conventional Western thoughts,” Jen, who runs hedge fund and advisory firm Eurizon SLJ Capital, wrote in a note Monday. “If indeed Hong Kong converges further toward China, both in terms of the real economy and the financial system, the yuan should in theory become the dominant” tender, marginalizing the Hong Kong dollar, he wrote.
Hong Kong’s basic law identifies the local dollar as the city’s legal tender -- though deposits and transactions can be made in yuan, along with other currencies.
The city’s political unrest in recent months has helped spur interest among hedge funds in bets against the Hong Kong dollar, which has been kept in a tight range against the greenback since 1983. They see capital flight eventually forcing the city’s government to dump its currency policy.
Jen, who previously worked at the International Monetary Fund, takes the opposite view.
“I would say that BECAUSE of the heightened political tensions with China, it would be next to impossible for Hong Kong to abandon an important symbol of autonomy,” he wrote.
©2019 Bloomberg L.P.
RECOMMENDED FOR YOU
POPULAR