What is the Hong Kong Monetary Authority (HKMA)?
Founded in 1993, the Hong Kong Monetary Authority (HKMA) manages inflation and maintains the stability of the HKD and banking system through monetary policy. The HKMA ties the HKD to the U.S. dollar to stabilize its value.
Understanding the HKMA
Hong Kong is China’s finance center and a hub for global corporations. Hong Kong, a Special Administrative Region of China, has its currency and a nominal GDP of about $365 billion in 2019. The HKMA serves as the region’s de facto central bank.
HKMA manages the Hong Kong Monetary Authority Investment Portfolio, a sovereign wealth fund. The Executives’ Meeting of East Asia-Pacific Central Banks includes the HKMA, the Reserve Bank of Australia, the People’s Bank of China, the Bank of Japan, and seven other central banks.
Responsibility of HKMA
The HKMA is responsible for preserving currency stability. The Linked Exchange Rate framework stabilizes the exchange rate between the Hong Kong dollar (HKD) and the U.S. dollar (USD). The fixed-rate exchange system limits HKD note-producing banks to printing new banknotes only after depositing an equivalent amount of U.S. dollars with the authorities, aiming to maintain parity with the USD within a narrow range. The exchange rate fluctuates within a range. The HKMA operates with one of the world’s most significant currency reserves relative to its economy.
The authority runs the Exchange Fund. The Fund aims “to affect, either directly or indirectly, the exchange value of the Hong Kong currency.” The Fund can also help Hong Kong remain an international financial hub by maintaining its monetary and financial systems.9
The HKMA ensures the stability and integrity of the financial system, including banking. The authority purchases HKD to maintain parity with the dollar within the specified range. Since 2021, Hong Kong’s fixed-rate regime has maintained low-interest rates, promoting growth and investment. However, low-interest rates have caused a historical housing price bubble in the area, causing affordability issues.
