The history and trade value of the Hong Kong dollar

The Hong Kong dollar has been through changes over the last century and a half, but has remained a strong currency.

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The Hong Kong dollar (HKD, HK$) is the official currency of Hong Kong. It’s the 13th most traded currency in the world and is also used in Macau, alongside the Macau pataca. Hong Kong rates as one of the world’s top financial centers and a well established international financial market, low taxation and almost free port trade characterizes this largely service-oriented economy.

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The Sino-British Joint Declaration and the Basic Law of Hong Kong allows complete autonomy to issue currency under the scope of the Hong Kong Monetary Authority. Because Hong Kong doesn’t have its own central banking system, the Hong Kong Monetary Authority operates as the de facto central bank. The Hong Kong Note Printing Limited prints the banknotes and distributed them to the three note-issuing banks in Hong Kong.

The Hong Kong Monetary Authority has an obligation to keep the exchange rates stable and maintain the structure of the linked exchange rate system. It does this through monetary operations, systematic management of the exchange funds and any other means it finds necessary.

Value and exchange rates of the Hong Kong dollar

The Hong Kong dollar is pegged to the US dollar, and to make sure the currency is market-driven, individual banks in Hong Kong work to determine interest rates. As part of the linked exchange rate system, Hong Kong benefits from strong official reserves, a flexible economic structure and a sound banking system.

From 1863 to 1935 the Hong Kong dollar followed the silver standard, where silver dollars was used. From December 1935 to June 1972 the Hong Kong dollar moved to the sterling exchange rate regime, valuing at HK$16 until 1967, and down to HK$14.55 until 1972.

In October 1983 the government announced a new policy to bring stability to the HKD, the linked exchange rate system. This new system was responding to currency panic and anxiety about reliability of some banks. Since then, the Hong Kong dollar trades at around HK$7.80 against the US dollar.

The table below gives you an indication of how the Hong Kong dollar performed against some leading currencies over time.

1990 2000 2005 2010 2015
US dollar 0.1283 0.1283 0.1286 0.1287 0.1289
Euro 0.1393 0.1034 0.0971 0.1163
Pound sterling 0.0723 0.0848 0.0707 0.0833 0.0844
Canadian dollar 0.1497 0.1906 0.1557 0.1326 0.1650
Chinese Renminbi yuan 0.6151 1.0624 1.0535 0.8714 0.8105

All values are yearly averages.

According to the Index of Economic Freedom, Hong Kong ranks number one in economic freedom. This measures the relationship between liberty and free markets. because Hong Kong has shown a great deal of economic resilience, it remains one of the world’s most competitive financial and hubs.

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History of the Hong Kong dollar

In 1841, upon Hong Kong’s establishment as a free trading port, the region didn’t have its own local currency, and the use of foreign currencies like Indian rupees, Spanish and Mexican pesos as well as Chinese coins were quite common. While the British government tried to introduce the use of sterling silver coinage in Hong Kong, it failed, as it did in its North American colonies, mainly because the strong local following of the Spanish dollar system.

In 1860, the British gave up trying to influence currency in Hong Kong. The British began minting money for Hong Kong from the Royal Mint in London. And in 1866, a new local mint was established in Hong Kong to issue its own silver dollars and half dollar coins. However, the Chinese didn’t receive them well, causing the mint to be closed down a mere two years later.

The International Silver Crisis in 1873 saw devaluation of the silver coins circulating the Chinese coast. But Hong Kong and China stayed with the silver standard until 1935, the last currencies in the world to do so. That year they abandoned the silver standard and adopted a crawling peg to sterling £1 = $15.36 to $16.45. This is when the Hong Kong dollar was first printed, and the government recognized the one dollar notes as the local currency. And in 1939, the Hong Kong Dollar was put on a fixed peg of $16 = £1.

After the Japanese occupation during WWII, the Hong Kong Dollar was restored in 1945. In 1972, the Hong Kong dollar was pegged to the US dollar at a rate of HK$5.65 = US$1. After being floated for nine years, it was again pegged to US currency at a rate of HK$7.8 = US$1

Today, Hong Kong’s monetary system is backed with US dollars at the linked exchange rate. No bank can issue Hong Kong currency unless it has the equivalent exchange in US dollars on deposit. The resources for the backing are kept in Hong Kong’s exchange fund which is among the largest official reserves in the world.

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Coins and banknotes of the Hong Kong dollar

The introduction of 1 mil, 1 and 10 cent coins took place in 1863, and 5 and 20 cents, and half and 1 dollar coins came about in 1866. The 1 mil coin and the 1 cent coins were made of bronze, with the 1 mil coin is made with a hole. All other coins were made of silver. In 1866 they stopped making 1 mil coins, and in 1934, tey stopped making 1 cent coins.

In 1937, cupronickel coins entered the picture, and the use of nickel-brass began in 1977. By 1993, there began a gradual withdrawal of coins with Queen Elizabeth II’s portrait. Most coins and banknotes now feature the Bauhinia flower or other local symbols. Hong Kong coins come in denominations of 5c, 10c, 20c, 50c, $1, $2, $5 and $10.

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The Hong Kong Monetary Authority governs the issuance of banknotes. Banks that issue their own banknotes under licence include the Bank of China (Hong Kong) Limited, the Hongkong and Shanghai Banking Corporation Limited and the Standard Chartered Bank (Hong Kong) Limited. Modern day Hong Kong dollar notes come in denominations of $10, $20, $50, $100, $500 and $1,000.

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