On Aug. 5, Hong Kong’s central bank bought the largest amount of its currency in one day since May 12—HK$14.161 billion (about $1.80 billion)—to stop it from weakening further and breaking its peg to the U.S. dollar.
On July 28, after the U.S. Federal Reserve announced a rate hike of 75 basis points, the Hong Kong Monetary Authority (HKMA), the city’s central bank, followed suit and raised its base rate upward by 75 basis points to 2.75 percent.
Since Oct. 17, 1983, Hong Kong has adopted the Linked Exchange Rate System (LERS), allowing the HKMA to stabilize exchange rates from the U.S. dollar to the HKD between 7.75 and 7.85, also known as the Convertibility Undertaking (CU). As a currency pegged to the USD, the HKD’s strong-side CU is 7.75 to one U.S. dollar, and the weak-side CU is 7.85….