Hong Kong has won the tag global financial hub. It is also a global magnet for multinationals especially those targeting to spread tentacles to the Far East. By operating as a Special Administrative Region (SAR) of the People’s Republic of China, Hong Kong is an autonomous territory and has own currency. With this setting, the Hong Kong Monetary Authority (HKMA) is the de facto central bank.
The authority maintains a sovereign wealth fund referred as HKMA Investment Portfolio. HKMA is also a member of influential East Asia and Pacific Central Banks. Other members of the financial union include the Bank of Japan, the People’s Bank of China, the Reserve Bank of Australia, and seven other central banks
The roles and responsibilities of HKMA
Like other central banks, the primary role of HKMA is to maintain the stability of Hong Kong Dollar (HKD), the jurisdiction’s currency. The HKD linked exchange is aimed at helping to stabilize Hong Kong Dollar and the United States Dollar (USD). The fixed rate system is used to maintain parity with USD within the preferred tight range.
This means that HKD note-issuing banks only release new bank notes after an equivalent value of USD is deposited with HKMA. In 2018, HKMA set the exchange at 1USD to 7.8HKD. Note that this could fluctuate with about 10 U.S cents. Today, HKMA has one of the globe’s largest reserve in relation to the economy.
HKMA operates the region’s Exchange Fund. The primary objective of the Exchange Fund is effecting the exchange value of HKD either directly or indirectly. The Fund can also be used in maintaining stability and integrity of the financial and monetary systems to keep Hong Kong as the international financial hub.
HKMA is the primary organization charged with facilitating the Hong Kong’s stability and integrity of its financial system. This is achieved through the direct purchase of HKD in order to maintain parity within the preferred range with the USD. It is this fixed-rate system that has helped to keep the interests very low in Hong Kong. One of the impacts of low-interest rates is promoting investment.
It is important to appreciate that the low-interest rates have also been the primary factor driving the home price boom in Hong Kong resulting in affordability issues.