What is the Hong Kong Monetary Authority (HKMA)
Created in 1993, the Hong Kong Monetary Authority (HKMA) acts to control inflation and maintain the stability of the Hong Kong dollar (HKD) and the banking sector through its monetary policy. The HKMA links the HKD to the US dollar to help the HKD maintain a stable value.
Understanding the Hong Kong Monetary Authority (HKMA)
Hong Kong is key financial capital for the People’s Republic of China, and it is a place where multinationals can locate. As a special administrative region of the People’s Republic of China, Hong Kong is an autonomous territory with its own currency and a nominal annual GDP of more than $ 335 billion in 2020. The HKMA acts as a de facto central bank for the region .
The HKMA has a sovereign wealth fund, called the Hong Kong Monetary Authority Investment Portfolio. HKMA is a member of the central banks of East Asia and the Pacific, as well as the Reserve Bank of Australia, the People’s Bank of China, the Bank of Japan and seven other central banks.
One of the key roles of the HKMA is to maintain monetary stability. The linked exchange rate system is designed to stabilize the exchange rate between the Hong Kong dollar (HKD) and the United States dollar (USD). The fixed rate exchange system aims to maintain parity with the USD within a narrow range, allowing banks issuing HKD notes to issue new notes only when they deposit an equivalent value in US dollars with the authority . The exchange rate tends to fluctuate within a defined range. The HKMA has one of the largest foreign exchange reserves in the world compared to its economy.
The authority manages the Exchange Fund. The main objective of the fund “is to affect, directly or indirectly, the exchange value of Hong Kong currency. The fund can also be used to maintain the stability and integrity of Hong Kong’s monetary and financial systems in order to to help maintain Hong Kong as an international financial center, “according to the HKMA.
The HKMA is responsible for promoting the stability and integrity of the financial system, including the banking system. One of the main ways in which the authority does this is to buy HKDs to maintain parity with the dollar within the specified range. From 2019, the fixed rate system kept interest rates at a very low level in Hong Kong, encouraging expansion and investment. But low interest rates have also fueled a record spike in home prices in the territory, creating accessibility issues.