What is the HKD (Hong Kong Dollar)?

HKD is the abbreviation for the Hong Kong dollar, the official currency of Hong Kong, which is one of the most traded currencies globally. The HKD is used in both Hong Kong and the neighboring territory of Macau, whose currency, the Pataca, is pegged to the Hong Kong dollar.

Key Takeaways

  • HKD is the abbreviation for the Hong Kong dollar, the official currency of Hong Kong, which is one of the most traded currencies globally.
  • The HKD has been pegged to a narrow trading band, which currently ranges from HK$7.7500 and HK$7.8500 per USD.
  • The HKD is the thirteenth most traded currency, and because it is pegged to the U.S. dollar, with upper and lower limits, it is does not exhibit any strong unique correlations with other currencies.

Understanding the HKD (Hong Kong Dollar)

The Hong Kong dollar is made up of 100 cents and is often shown with HK$ prefix to differentiate it from other dollar-denominated currencies. Hong Kong is a leading global financial center and its economy is considered to be the freest in the world.

The Hong Kong dollar was first seen as a distinct currency in 1863. Before then, various foreign currencies had been used, and continued to be used even after its inception. The HK dollar was outlawed by the Japanese puppet government in 1943 and reinstated in 1945 after the war. Hong Kong is now in sole control of the printing and administration of its currency, which is controlled by the Hong Kong Monetary Authority (HKMA).

In 1972, the HK dollar was pegged to the U.S. dollar at a rate of HK$5.65 to $1 USD. Since then, it has remained pegged to the dollar, with the HKMA adjusting its value from time to time. The Hong Kong dollar has been pegged to a narrow trading band, which currently ranges from HK$7.7500 and HK$7.8500 per USD. If, and when, the HKD hits either the upper or lower bound, the HKMA, which acts as the de facto central bank, intervenes to stabilize the currency.

This trading band versus the USD has been in place since 1983, although the upper and lower limits have been adjusted periodically. The HKMA has about $450 billion+ USD in foreign reserves to thwart any attempts, one notable attempt was made by legendary hedge fund manager George Soros in 1998, to break the peg with the USD.

The HKD is the thirteenth most traded currency, and because it is pegged to the U.S. dollar, with upper and lower limits, it is does not exhibit any strong unique correlations with other currencies.

Three Chinese note-issuing banks (HSBC, Bank of China, and Standard Charted) are authorized to issue Hong Kong dollars, subject to conditions laid out by the Hong Kong government. Banknotes then run through a government exchange fund that holds U.S. dollars in reserves and records all transactions in the general accounts of the two currencies. Under capital control laws, a bank can only use a HK dollar if it has the equivalent value of U.S. dollars on deposit.