The linked exchange rate system of the Hong Kong dollar includes the following main contents: (1) When issuing Hong Kong banknotes, note-issuing banks in the Hong Kong Special Administrative Region (currently including HSBC, Standard Chartered Bank and China Bank) should deposit US dollars into the Exchange Fund (now incorporated into the Monetary Authority) at a fixed exchange rate of US$ 65,438+HK$ 0: 7.8, and exchange them for "certificates of indebtedness" as a preparation for issuing Hong Kong banknotes. (2) If the note-issuing bank returns the Hong Kong banknotes and the Certificate of Indebtedness to the Exchange Fund, the US dollar will be redeemed at a fixed exchange rate of US$ 65,438+HK$ 0: 7.8. (3) Many commercial banks and other financial institutions need Hong Kong banknotes and pay US dollars to note-issuing banks at the above price ratio to collect Hong Kong banknotes; If Hong Kong banknotes are returned, the US dollars will be exchanged at the original price. The fixed exchange rate of US$ 65,438+HK$ 0: 7.8 stipulated in the above linked exchange rate only applies to the provision of note-issuing reserves between note-issuing banks and the Exchange Fund, and between commercial banks and note-issuing banks; The transaction between Hong Kong dollar and US dollar in Hong Kong foreign exchange market is not subject to this restriction, and the exchange rate changes are determined by the power of money supply and demand. It can be seen that there are actually two exchange rates in the Hong Kong Special Administrative Region. One is the issue exchange rate between note-issuing banks and the Exchange Fund, and between commercial banks and note-issuing banks, that is, the linked exchange rate of 1 USD: HK$ 7.8; Another market exchange rate determined by the relationship between supply and demand in the foreign exchange market.
The Significance of Hong Kong's Linked Exchange Rate System
Hong Kong successfully implemented the linked exchange rate system on 1983. From 1983 10 10/7, note-issuing banks will convert 1 USD into HK$ 7.8, and pay USD to the Exchange Fund in advance in exchange for the equivalent HK$ "debt certificate", and then issue additional HK$ cash. At the same time, the government also promised that the note-issuing banks can also exchange Hong Kong dollars at this price after the cash in Hong Kong dollars returns from circulation.
After the implementation of the linked exchange rate system, maintaining exchange rate stability has become the only goal of Hong Kong's monetary policy. Since its birth, the linked exchange rate system has worked well for 16 years, helping Hong Kong avoid the devaluation crisis of Asian currencies. It will also bring short-term and medium-term links to Hong Kong's economy.