Hong Kong Dollar (HKD) and US Dollar (USD)
The Hong Kong Dollar (HKD, HK$, “Hongkers” – informal name) is pegged to the US Dollar (USD). The initial conversion rate was 5.085 Hong Kong Dollar to 1 US Dollar in 1972 but the H.K. Dollar has since been floated to a current band of exchange rate between 7.75 HKD/ 7.85 HKD = 1 US Dollar. This represents a maximum variance of 1.29%.
To the average tourist between United States and Hong Kong – there is hardly any need to forecast the trend of US Dollar/Hong Kong Dollar exchange rate. You can simply convert either of the currency just the day before you travel, and rest assured that it will not matter materially if you had converted your currency 6 months ago or even earlier. This bode well for Hong Kongers studying in the United States, as a stable peg of Hong Kong Dollar means that it is easy to forecast and budget your study expenses. Similarly, Hong Kongers working in the United States will not be exposed to the currency fluctuations that can relatively reduce your pay against a basket of foreign currencies.
There is no fear that speculative trading will destabilise the trading band of the Hong Kong Dollar compared to the US Dollar. The Hong Kong Monetary Authority (HKMA) is especially cautious to ensure that the trading band stays. One way to control this is to ensure that a bank can only issue a Hong Kong dollar if it has the equivalent exchange in U.S. dollars on deposit. In addition, Hong Kong also has huge deposits U.S. Dollars, estimate being at over US$700 billion based on 2008 figures.
Therefore, only major news that will likely rock the Hong Kong Dollar/ US Dollar stability will be the Renminbi (Chinese Yuan, RMB). Hong Kong, now being part of China, may eventually adopt the Renminbi as the currency of usage. When that happens. the US Dollar will further weaken as there is no longer any need for Hong Kong to maintain US Dollar reserves.
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