The Hong Kong dollar is the official currency of Hong Kong and also the 13th-most-traded currency in the world. In addition, USD/HKD is the 11th-most-traded currency pair. The Hong Kong dollar divides into 100 cents. The currency, which is governed by the Hong Kong Monetary Authority, uses the symbol HK$ and the currency code HKD. Its most frequently used banknotes are the HK$20, HK$50, HK$100, HK$500 and HK$1000.
The History Of The Hong Kong Dollar
In 1841, Hong Kong was established as a free trade port and relied on foreign currencies for transactions. At the time, industry participants used British currency, Spanish and Mexican 8 reales, Indian rupees and Chinese cash coins. In 1863, London's Royal Mint issued coins specifically made for Hong Kong. These coins, which bore the ruling monarch's Royal Cypher, came in the form of the bronze one cent (the one mil), which was worth one-tenth of one cent, and the silver 10 cent.
In 1846, the Oriental Bank, the first bank in Hong Kong, started circulating Hong Kong dollar banknotes that could be exchanged for silver dollars. As a result, the city received its own paper money for the first time. Over the next several years, subsidiary coins experienced a steady increase in demand, and in 1863, the Hong Kong Government started placing orders for coins denominated in 10 cents or less from Britain.
The Hong Kong Mint was created in 1866, resulting in a local organisation that could print silver coins with denominations between five cents and HK$1. While the founding of the Hong Kong Mint established the dollar as the city's currency, market participants continued to use foreign currencies, and the mint suffered a loss shut down in 1888. As a result, silver trade dollars originating in Japan, the U.S. and Britain were used in the place of the regal dollar coins.
Starting in 1895, authorities enacted legislation in an effort to consolidate the currency. That year, the Bank Note Issue Ordinance was enacted. As a result of this decree, banks needed to obtain approval from the Secretary of State before printing any notes in Hong Kong and were required to seek this permission through the governor.
Hong Kong's government used the silver standard until 1935, at which point it changed direction and opted to peg the Hong Kong dollar to the pound sterling. That year, the government enacted the One-Dollar Currency Note Ordinance of 1935, which coincided with the issuance of the one dollar note and the government declaring the Hong Kong dollar the local monetary unit.
The Exchange Fund was also set up in 1935. Its establishment provided note-issuing banks with a requirement to hold silver in the fund, for which they would receive a Certificate of Indebtedness. As a result of this change, banks were not required to pay noteholders in silver when they brought these units of currency in. Since that time, banknotes have been legal tender in Hong Kong. In 1937, the currency was finally unified when the Hong Kong government standardised coinage in the city and became the sole issuer of this currency.
Both Hong Kong and Japanese forms of currency circulated when the Imperial Japanese Army occupied Hong Kong during World War II. However, the Hong Kong dollar ceased to be accepted as legal tender in 1943, at which point the Japanese military notes were the only currency in the jurisdiction. During the Japanese occupation, "duress notes" were printed. They got their name from the fact that they were unbacked notes that executives of the Hong Kong and Shanghai Banking Corporation signed under duress. The bank then legitimised these bills in 1946, which supplied the Exchange Fund with the sterling needed to back the legal tender over the course of several years.
Post-World War II
Once the colonial government was restored in the late 1940s following the surrender of Japan, it printed substantial quantities of paper money, as Hong Kong's coins had been seized and sent to Japan so they could be melted. Over the next several decades, the coinage experienced numerous changes. Queen Elizabeth II's portrait was featured on new coins starting in 1955. Notes worth HK$1000 were first issued in the 1970s by The Standard Chartered Bank and HSBC, and the Mercantile Bank printed its last banknotes that decade. In 1975, the government began circulating the HK$5 regal coin and stopped issuing the HK$5 note.
That decade, the Hong Kong dollar was also affected by the imposition and elimination of currency pegs, being linked to the U.S. dollar from June 1972 to November 1974. During the 1980s, both the Standard Chartered Bank and HSBC issued HK$20 banknotes, which were printed by De La Rue Company Limited's Hong Kong branch, now known as Hong Kong Note Printing Limited.
Hong Kong's Return To China
On December 19, 1984, Margaret Thatcher, Prime Minister of Great Britain and Northern Ireland, and Zhao Ziyang, Premier of the People's Republic of China, signed a Joint Declaration, in which the two heads of state announced that China would resume sovereignty over Hong Kong as of July 1, 1997. As a result, the jurisdiction entered a transitionary period.
The document outlined the policies that would exist under the agreement, which would include the People's Republic of China creating a Hong Kong Special Administrative Region that would function directly underneath the Central People's Government. The policies this region had before the declaration's signing would remain largely intact, but the Central People's Government would have authority over foreign matters and also defense. More specifically, the agreement dictated that Hong Kong would maintain its economic system for 50 years after 1977. As a result, the jurisdiction would practice capitalism and refrain from joining China's socialist system.
Additional Changes To The Coinage
About halfway through Hong Kong's transition period, the jurisdiction's coinage again began undergoing changes. The Hong Kong Monetary Authority was created in 1993 through the merger of the Office of the Commissioner of Banking and the Office of the Exchange Fund. That same year, a series of new coins, which featured a picture of the bauhinia, was issued. This addition was expanded upon in 1994, when the Bank of China supplied its first issue of Hong Kong banknotes and the jurisdiction's government started issuing HK$10 coins.
The HK$10 note came back into circulation once again in 2002 in response to robust demand. Currently, Hong Kong's banknotes include bills denominated in HK$10, HK$20, HK$50, HK$100, HK$500 and HK$1000.
The Hong Kong Monetary Authority is responsible for maintaining monetary and banking stability in Hong Kong. The HKMA has four primary responsibilities:
- Preserve the Hong Kong dollar's stability within the structure of the Linked Exchange Rate System
- Manage the Exchange Fund
- Assist the financial system in retaining its integrity and soundness
- Help Hong Kong retain its position as a world-class financial center
While Hong Kong and China have distinct monetary systems, the People's Bank of China has promised to harness its foreign reserves to assist Hong Kong should the jurisdiction require assistance in keeping its currency stable. Existing policy places all authority to issue Hong Kong currency in the hands of the jurisdiction's government.
Currencies Pegged To The Hong Kong Dollar
The Hong Kong dollar has been pegged to both the British pound and the U.S. dollar. In 1935, Hong Kong's government announced the jurisdiction's currency would go off the silver standard and be pegged to the British pound at the rate of HK$16 per pound. When the British government announced in June 1972 that it would float the pound, the Hong Kong dollar was linked to the greenback, starting with a rate of HK$5.65 to the U.S. dollar. Starting in February 1973, this rate changed to one U.S. dollar per HK$5.085.
Hong Kong's government decided to let its currency float freely starting in 1974. While this move worked for the first two years, the jurisdiction quickly encountered sharp fluctuations in both growth and inflation. While the price level rose a modest 2.7% in 1975, it surged 15.5% in 1980. GDP increased 0.3% in 1975 but proceeded to spike 16.2% in 1976.
Additionally, Hong Kong's currency plunged relative to the greenback, falling to a record low of HK$9.60 versus the U.S. dollar in 1983 compared to HK$5.13 in 1981. Amid these challenging economic conditions, Hong Kong's government announced October 15, 1983, that it was pegging its currency at HK$7.80 to the U.S. dollar.
Major Hong Kong Dollar Currency Pairs
Investors can trade the Hong Kong Dollar against several different currencies. As a result, USD/HKD, EUR/HKD, AUD/HKD, BRL/HKD, CAD/HKD and CHF/HKD can all be transacted.
Hong Kong Dollar Bills And Coins
As mentioned, there are Hong Kong dollar notes with denominations of HK$10, HK$20, HK$50, HK$100, HK$500 and HK$1,000. The HK$10 bill comes in several different forms, including one issued by two note-issuing banks in the 1990s, a HK$10 paper bill the government has printed since 2002, and a HK$10 polymer note in circulation since 2007. The government also circulates coins worth 10 cents, 20 cents, 50 cents, HK$1, HK$2 and HK$5. While coins displaying the bauhinia flower began circulating in 1993, the previously issued coins, which display the picture of the Queen, are still legal tender.
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Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…