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Under the current Hong Kong linked exchange rate system, the exchange rate is maintained in a narrow conversion range of 1 US dollar = 7.75 to 7.85 Hong Kong dollars.
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Unlike many economies that adopt fixed exchange rates, Hong Kong's currency base is 100% backed by US dollar assets, so when the currency base changes, the amount of US dollar assets held by the Hong Kong Monetary Authority's Foreign Exchange Fund also changes.
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Adequate foreign exchange reserves provide a solid foundation for the smooth implementation of the linked exchange rate system.
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The linked exchange rate system is implemented through the convertibility guarantee provided by the Hong Kong Monetary Authority.
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The Hong Kong Monetary Authority has committed to selling Hong Kong dollars at a strong convertibility guarantee level of 7.75 Hong Kong dollars per US dollar and buying Hong Kong dollars at a weak convertibility guarantee level of 7.85 Hong Kong dollars per US dollar.
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When there is an excess (shortage) of demand for Hong Kong dollars, the HKMA will sell (purchase) Hong Kong dollars in the market to stabilize the price.
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Over the past 40 years, the linked exchange rate system has undergone several technical adjustments, but its overall operation has been stable.
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As shown in Figure 1, the Hong Kong dollar-to-US dollar exchange rate has been successfully maintained within the exchange rate target range.【Financial Advisor】Small investments can generate impressive profits online.