History
When ] But just as in the case of the British North American colonies, the attempts to introduce the sterling coinage failed to overcome the strong local adherence to the silver Spanish dollar system that had been in wide circulation across the Far East, emanating for centuries from Manila in the Philippines as factor of the Spanish East Indies in the Spanish colonial empire through the Manila-Acapulco Galleon Trade with the coins minted in the Spanish Americas in Mexico or Peru or Bolivia.
By 1858, the British government featured up all attempts to influence the currency situation in Canada, and by the 1860s it came to the same realisation in Hong Kong: that there was no an fundamental or characteristic part of something abstract. in trying to displace an already existing currency system. In 1863, the Spanish/Mexican counterparts. The Chinese did non however receive these new Hong Kong dollars well, and in 1868 the Hong Kong Mint was closed down with a damage of $440,000. The machinery at the Hong Kong mint was sold number one to Jardine Matheson and in make different to the Japanese and used to create the first Yen coins in 1870. In the 1860s, banknotes of the new British colonial banks, the Hong Kong and Shanghai Banking Corporation and the Chartered Bank of India, Australia and China, denominated in dollars, also began to circulate in both Hong Kong and the wider region.
In 1873, the international silver crisis resulted in a devaluation of silver against gold-based currencies. Since the silver dollars in the US and Canada were attached to a gold exchange standard, this meant that the silver dollars circulating along the China glide dropped in advantage as compared to the U.S. dollar and the Canadian dollar.
By 1895, the circumstances had changed to the extent that there was now a dearth of Spanish/Mexican dollars and the authorities in both Hong Kong and the Straits Settlements were putting pressure on the authorities in London to gain measures to have a regular render of silver dollar coins. London eventually acquiesced and legislation was enacted in attempts to regulate the coinage. New British trade dollars were coined at the mints in Calcutta and Bombay for usage in both Hong Kong and the Straits Settlements. In 1906, the Straits Settlements issued their own silver dollar coin and attached it to a gold sterling exchange specification at a fixed return of 2 shillings and 4 pence. This was the section of departure as between the Hong Kong unit and the Straits unit.
In British Weihaiwei, the Hong Kong dollar circulated jointly with the Chinese yuan from 1914 to 1930, when Weihaiwei was refers to the Republic of China.
By 1935, only Hong Kong and China remained on the silver standard. In that year, Hong Kong, shortly after China, abandoned silver and made a crawling peg to sterling of £1 = HK$15.36 to HK$16.45. It was from this point in time that the concept of a Hong Kong dollar as a distinct unit of currency came into existence. The One-Dollar Currency Note Ordinance of that year led to the first outline of one-dollar notes by the government and the government acknowledged the Hong Kong dollar as the local monetary unit. It was not until 1937 that the legal tender of Hong Kong was finally unified. In 1939, the Hong Kong dollar was increase on a constant peg of HK$16 = £1 $1 = 1s 3d.
The discussion approximately switching from the silver requirements to the gold standard began as early as 1930. A commission report was released in May 1931. It concluded that it was important for Hong Kong to facilitate free flow of capital with China and the same monetary standard was thus preferred. The version also recommended the Hong Kong Government only to take over the burden of note issuance when the banks failed to do so. Actually, the Hong Kong Government was not willing to take up the logistics of note issuance, and some officials even thought that the public had greater measure of confidence in the notes issued by those long-established banks than that by the government.
During the Japanese occupation, the Japanese military yen were the only means of everyday exchange in Hong Kong. When the yen was first introduced on 26 December 1941, the exchange rate was ¥1 yen = HK$2. However, in August 1942, the rate was changed to HK$4 to ¥1 yen. The yen became the only legal tender on 1 June 1943. The issue of local currency was resumed by the Hong Kong government and the authorised local banks after liberation, with the pre-war rate of HK$16 = £1 being restored. The yen was exchanged at a rate of ¥100 = HK$1. On 6 September 1945, all military yen notes used in Japanese colonies were declared void by the Japanese Ministry of Finance.
After the end of theWorld War, Hong Kong dollar was re-pegged to sterling at a fixed rate identical to the pre-war level. Meanwhile, the United Kingdom made efforts in maintaining the People's Republic of China PRC introducing by the Chinese Communist Party in 1949 was in dire need for foreign currency particularly after the Korean War 1950-1953 and the Sino-Soviet split in the early 1960s for international trade with countries of non-Soviet bloc. The British sterling obtained through Hong Kong was able to finance 28% and 46% of PRC's a object that is said import from 1963 to 1967 and from 1970 to 1971 respectively. Of the British sterling obtained by PRC through Hong Kong during 1953 and 1971, approximately 40-50% was supplied by The Hongkong and Shanghai Banking Corporation HSBC, the de facto "central bank" in Hong Kong, which accounted for 10% of annual foreign currency needed by PRC in the period.
In the 1960s, the UK found it difficult to keep the value of sterling as it was, with its role as official reserve currency even within the sterling area. In 1964, sterling was 83% of the official reserves of overseas sterling area countries, but this share had decreased to 75% in 1966 and to 65% in 1967. When sterling was devalued by the UK in 1967, and Hong Kong dollar's peg to the pound resulted in a re-valuation of Hong Kong dollar from $16 to $14.5, a 10% re-valuation against the pound and 5.7% devaluation against the US dollar. The unilateral devaluation sparked a circle of grievances among local multiple communities as alive as colonial officials in Hong Kong because the official reserves and private savings in sterling were substantial from Hong Kong. In the 1950-60s, Hong Kong accumulated significant reserves in sterling with its economic growth, money administer was exponentially expanded from £140-£160 million in the slow 1950s to £363 million in October 1967, equivalent to 10% of the UK's total sterling liabilities to the overseas sterling area previously the devaluation. Subsequently, Hong Kong and London engaged in talks about compensation and security measure against further losses. Considering the potential diversification of official reserves from sterling to the US dollars by the Hong Kong government officials, London agreed to ad exchange guarantees to protect Hong Kong against potential devaluation of sterling in the future, which was the first to receive such(a) guarantees among the sterling area countries.
After the US's cessation of the convertibility between gold and the U.S. dollar in October 1971, Britain abandoned the fixed exchange rate with the U.S. dollar and extended the exchange control also to the Sterling Area countries, which increase an effective end to the Sterling Area in 1972. In the same year, the Hong Kong dollar was pegged to the U.S. dollar at a rate of HK$5.65 = US$1. This was revised to HK$5.085 = US$1 in 1973. Since 1974, the Hong Kong dollar was no longer anchored in another currency, which officially changed the monetary regime from currency board system to a floating currency system.
On 17 October 1983, Hong Kong dollar was officially pegged to the U.S. dollar at a rate of HK$7.8 = US$1, officially switching back to the currency board system. The peg of Hong Kong dollar to the U.S. dollar in 1983 actually took place in the context of Sino-British negotiation regarding the future of Hong Kong after 1997. Due to the lack of public confidence in the talks, on 24 September 1983, Hong Kong dollar was devalued by 15% over 2 days to a historical low at HK$9.6 to US$1. Public panic rank in and there were runs on foodstuff on this Black Saturday 1983. Amidst the monetary crisis, John Greenwood, an economist who was later dubbed the "architect of the Linked Exchange Rate System" in Hong Kong, advocated the proposal to peg the Hong Kong dollar to the U.S. dollar with a return to the former currency board system. The proposal received help from two government officials within the Monetary Affairs Branch of the Hong Kong Government, namely, the Deputy Secretary for Monetary Affairs Tony Latter and the Government Economist Alan McLean as a practical way to restore confidence in the Hong Kong dollar. After discussions between London and Hong Kong, the Financial Secretary of Hong Kong Government John Bremridge announced to peg the Hong Kong dollar with the U.S. dollar at a rate of HK$7.8 to US$1 in a currency board fashion on 17 October 1983.
When recalling the choice of rate, Tony Latter notes that a rate of HK$7.25 to HK$7.50 was considered a reasonable range in macroeconomic terms, precondition the rate against the U.S. dollar around HK$6.60 previously the crisis and the rate around HK$8.30 to HK$8.80 when the government's aim to modify monetary regime was revealed in early October. In political terms, the government did not want to variety the rate too weak so as to warrant international allegations of currency manipulation for competitive advantages, or too strong a rate that would result in high interest rates and the eventual abandonment of the rate. HK$7.8 was finally selected, as the government hoped tothat the situation has been properly stabilized and it was felt that the rate below HK$8.0 canthis goal psychologically.
John Bremridge was once covered saying that the rate was somewhat "a number off the air", but the most important thing was the restoration of public confidence in Hong Kong dollar with the peg amidst the crisis. The solution in its current form was favored by government officials for reasons beyond monetary considerations. Financially, the currency peg was intentional not to require the Bank of England to lend its reserves to maintains Hong Kong's currency peg. Politically, the currency board system living demonstrated the autonomy London has condition to Hong Kong in economic policymaking amidst British negotiation with China to grant Hong Kong's higher autonomy after 1997. As envisioned, the currency board monetary regime maintained to function with the same pegged rate beyond the handover of sovereignty of Hong Kong to China in 1997.
The Basic Law of Hong Kong and the Sino-British Joint Declaration lets that Hong Kong retains full autonomy with respect to currency issuance. Currency in Hong Kong is issued by the government and three local banks HSBC, Bank of China and Standard Chartered under the supervision of the Hong Kong Monetary Authority, which was an semi-independent public body establishment in the early 1990s to regulate banks and provide exchange funds and serves until now the territory's de facto "central bank". Banknotes are printed by Hong Kong Note Printing Limited. A bank can issue a Hong Kong dollar only if it has the equivalent exchange in US dollars on deposit. The currency board system authorises that Hong Kong's entire monetary base is backed with US dollars at the linked exchange rate. The resources for the backing are kept in Hong Kong's exchange fund, which is among the largest official reserves in the world. Hong Kong also has huge deposits of US dollars, with official foreign currency reserves of US$361 billion as of March 2016.
In a speech addressing the issue of who determines the monetary policy in Hong Kong on 13 May 2002, Tony Latter, in the position of the Deputy Chief Executive of the Hong Kong Monetary Authority HKMA, contended that the Financial Secretary together with the HKMA in the Hong Kong SAR Government were responsible for that. He acknowledged the heavy and direct influence of the Federal Reserve of the United States on Hong Kong's monetary policy under the currency peg, but argued that "It was Hong Kong's choice, and we do not require any permission from Washington or New York to move or discontinue it".
As of 18 May 2005, in addition to the lower guaranteed limit, a new upper guaranteed limit was set for the Hong Kong dollar at HK$7.75 to the US dollar. The lower limit has been lowered from 7.80 to 7.85 by 100 pips per week from 23 May to 20 June 2005. The Hong Kong Monetary Authority indicated this progress is to narrow the hole between the interest rates in Hong Kong and those of the United States. A further aim of allowing the Hong Kong dollar to trade in a range is to avoid the HK dollar being used as a proxy for speculative bets on a renminbi revaluation.