Father of HK's Linked Exchange Rate John Greenwood: HKD-USD Currency Peg "Here to Stay"

John Greenwood, the economist behind the city's Linked Exchange Rate System, which pegs the Hong Kong dollar to the US dollar, says the currency link with the greenback is likely here to stay over the coming few decades, despite geopolitical tensions between China and the US.

Speaking with TVB News, Greenwood underscores how the system benefits China as a whole as well.

Since 1983, the Hong Kong dollar has been pegged to the US dollar in a bid to stabilise the city's currency.

The Hong Kong Monetary Authority manages the Linked Exchange Rate System by buying or selling the Hong Kong dollar to keep its exchange rate within a narrow range at about 7.8 Hong Kong dollars to one US dollar.

Against the backdrop of trade tensions between the US and China, renewed talks have surfaced about aligning the Hong Kong dollar with the renminbi -- in place of the greenback.

John Greenwood, known as the Father of the Linked Exchange Rate System, explains to TVB News why the current peg between the Hong Kong dollar and USD, serves not just the interests of the SAR -- but also China as a whole.

Greenwood: "Renminbi is what we call a non-convertible currency. It cannot be easily transferred into foreign currency. And the mechanism for the Hong Kong dollar peg requires easy transfers in and out. So this linked exchange rate can tolerate very big inflows and outflows, which will, avoid impacting or disrupting capital markets in China."

Over the past six months, the Hong Kong dollar has touched both the weak and strong ends of its peg in a band of 7.75 to 7.85 Hong Kong dollars to one US dollar more than ten times.

Greenwood: "Over the past five to ten years, to see such sharp movements within a relatively short time frame is unusual. But that doesn't mean that the system is not working. It was designed to accommodate those kind of disturbances. So what we had was this big inflows from IPOs, which pushed the exchange rate up."

He notes various shock absorbers are in place to make the system stable and resilient, while cushioning impact on interest rates.

Greenwood: "There's no reason why this peg to the US dollar shouldn't last 100 years if the US dollar remains a global reliable currency."

John Greenwood has also played a continuing role in the Hong Kong Monetary Authority's Exchange Fund Advisory Committee's Currency Board Subcommittee, which hold quarterly meetings and make recommendations to ensure the robustness and transparency of Hong Kong's Linked Exchange Rate System.