Hong Kong dollar is a substitute for US dollar. As you can imagine, Hong Kong dollars is an envelope with a red envelope of US dollars in it. You have a red envelope, but you know it is dollars. How did you get the Hong Kong dollars in your hand? There is only one starting point. Someone entered Hong Kong with the equivalent of one dollar. The Hong Kong government has no right to print as much money as it wants. The Hong Kong government stipulates that US$ 65,438+0 is exchanged for HK$ 7.8, but this is not a fixed exchange rate, but a linked exchange rate. What do you mean? Under the linked exchange rate, every Hong Kong dollar is a hedge against foreign exchange equivalent to US dollars, which is a complete hedge, so even if the Hong Kong government announces that all Hong Kong dollars will be converted into US dollars tomorrow, it can be done. When someone brings foreign currency equivalent to US$ 65,438+0 into Hong Kong and wants to exchange Hong Kong dollars, Hong Kong banks must deposit US$ 65,438+0 in the Monetary Authority of the Exchange Fund before issuing HK$ 7.8, and the Monetary Authority promises to accept it and give it the right to issue banknotes. This is the famous forced insurance exchange. On the contrary, if someone bids 1 USD to the bank, the bank will return HK$ 7.8 to the Monetary Authority, and the Monetary Authority promises to return 1 USD. Therefore, under the linked exchange rate, the value of the Hong Kong dollar and the US dollar will remain unchanged, and the buying and selling of the Hong Kong dollar by the Monetary Authority is only a necessary procedure, not an act of supporting and suppressing the exchange rate. Therefore, when funds or even all cash flows out of Hong Kong, the value of Hong Kong dollar will remain unchanged (7.8 ratio 1 US dollar), but the cash in the banking system in Hong Kong will decrease (deflation) because banks in Hong Kong have no right to print money. The only way to increase the Hong Kong dollar is to increase the US dollar, just like if there are fewer US dollars, there will be fewer red envelopes to be sealed. If Hong Kong can't link the exchange rate, then the Hong Kong government will recover Hong Kong dollars from all its foreign exchange reserves at a ratio of 7.8 1, and then issue Hong Kong dollars or exchange them for RMB. In theory, the public will not lose anything. Of course, the exchange rate of the new Hong Kong dollar is hard to guess, depending on the economic strength of Hong Kong at that time. There is only one linked exchange rate in the world, which is a very stable system, but the disadvantage is that all monetary policies are abandoned by the United States and followed closely, and all monetary instruments such as interest rate bills are abandoned.