Hong Kong Says it Will Not Drop U.S. Dollar Peg

Hong Kong said Thursday it had no plans to get rid of its currency's peg to the U.S. dollar, despite growing calls to end the 28-year link as the world's largest economy falters.

The southern Chinese city has come under pressure in recent weeks to allow the Hong Kong dollar to appreciate against the greenback, against the backdrop of rising inflation in the city of seven million.

Responding to reports that a top hedge fund manager had said he was backing a depegging a government spokesman told Agence France Presse: "There is no need to change the dollar peg which has served Hong Kong well since its introduction."

His comments came after William Ackman reportedly said Wednesday he was buying the Hong Kong dollar in a big bet, as he believed Hong Kong will allow the currency to appreciate by 30 percent against the US dollar eventually.

The Hong Kong dollar is pegged at HK$7.80 to the greenback at present, but it is allowed to trade in a range of HK$7.75-HK$7.85.

The former British colony, which was returned to Chinese rule in 1997, maintains a semi-autonomous status with its own currency and political system.

The city government has faced mounting calls to review the peg after banking giant HSBC chief executive Stuart Gulliver said last month that it should consider linking the local dollar to a basket of currencies.

That sentiment was echoed by some economists, who also urged the government to review the peg.

"It makes more economic and financial sense but I don't think they will do it because the bureaucrats would not want to upset the status quo," said Francis Lun, managing director of financial services firm Lyncean Holdings.

Officials and the city's de facto central bank however have maintained they have no intention to make any changes soon, as they said the U.S. dollar remains the major global reserve currency despite Standard & Poor's historic downgrade of the U.S. government's credit rating last month.

Source: Agence France Presse

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