Paul Chan, financial secretary of the Hong Kong Special Administrative Region (HKSAR), told CGTN in an exclusive interview that Hong Kong is determined to defend the HK dollar and that the city will continue to play its role as an international financial center.

Chan said that Hong Kong is determined to defend the linked exchange rate system, in which the local currency is pegged to the U.S. dollar, adding that the system is designed by Hong Kong, thus depends on the city's determination to uphold it.

The Hong Kong dollar's fixed exchange rate against the U.S. dollar was introduced in 1983 as a corrective measure to counter capital outflows. The U.S. implied late last month that it will strip the HKSAR of its special privileges, in response to China's passage of national security legislation. Chan said the decision to peg the currencies was made entirely by the city, rather than being a special privilege. He elaborated that the peg was put in place nine years before the U.S. Hong Kong Policy Act was promulgated in 1992, thus these are independent of each other.

Chan said that, in terms of foreign exchange reserve, Hong Kong has over 440 billion U.S. dollars, which is more than twice the city's monetary base.

He also referred to a swap arrangement with the People's Bank of China, in which the bank swaps U.S. dollars and Hong Kong dollars.

With such a strong support, I think we would be more than able to defend any attack on our currency, Chan said.

The peg usually serves as a hot topic during times of economic stress. The Hong Kong Monetary Authority has a mandate to buy up Hong Kong dollars for U.S. dollars when outflows push the exchange rate to the trading band's weaker limit of 7.85 Hong Kong dollars per U.S. dollar.

But despite the unrest raging in the city, the Hong Kong dollar strengthened to 7.79 at the end of 2019 and currently trades at 7.75.

Hong Kong serves as a financial bridge

Responding to doubt about the city maintaining its appeal as an international financial hub, Chan said Hong Kong will continue to play a very useful role and play to its strengths.

The central government has repeatedly reaffirmed the 'One Country, Two Systems' for Hong Kong. It is in the best interest of Hong Kong. It serves the interest of the country very well, said Chan.

He mentioned that amid the Sino-U.S. tension, the U.S. seems to be applying pressure on mainland companies listed on their stock exchanges.

In 2018, Hong Kong prepared for mainland companies listed overseas to have a secondary listing in the city. The Hong Kong Stock Exchange welcomed Alibaba in 2019, and is expectingtech group Neteaseand e-commerce giant JD.com this year.

Opinion:

Why Hong Kong is still a strategic financial hub for Chinese companiesIn the secondary listing pipeline, we see very encouraging response, this is a very good example to demonstrate what we can do for the country, but at the same time benefiting ourselves, said Chan.

International investors have increased purchases of Chinese bonds from Hong Kong during the pandemic, Eddie Yue, chief executive of the Hong Kong Monetary Authority, said last month.

Yue said that the average daily turnover of the stock and bond connect programs linking the Chinese mainland and Hong Kong has seen a sharp increase year on year during the pandemic, with the Bond Connect daily turnover increasing three times, and the inflow through the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect doubling in the past three months.

(CGTN)