Bloomberg quoted close sources saying that some top advisers to US President Donald Trump’s administration want to limit the ability of Hong Kong banks to buy US dollars.
However, these measures are only being discussed in US Secretary of State Michael Pompeo’s advisory group and have not been presented to higher levels in the White House.
A source said this is just a measure at the bottom of the priority list.
Outside a money exchange point in Hong Kong.
Paul Chan, Hong Kong’s financial leader, said last month that China’s Central Bank could provide them with US dollars if the US imposes sanctions.
Hong Kong has pegged its local currency to the USD since 1983, allowing the exchange rate to fluctuate within a very small range, usually around 7.8 Hong Kong dollars per US dollar.
The Hong Kong dollar is still quite strong, partly thanks to the demand for Chinese companies to issue shares and the steady flow of capital flowing into this stock market.
Xia Le – chief economist for Asia at BBVA Hong Kong, said the idea of tightening the supply of dollars to Hong Kong is `like a nuclear weapon` and could cause the US and Chinese economies to decouple if implemented.
Patrick Bennett – Director of Asia macro strategy at Canadian Imperial Bank of Commerce said that `The idea that Hong Kong could somehow be forced to peg its currency to the US dollar is quite laughable.`
Another possible way for the US to put pressure on Hong Kong’s exchange rate peg system is for the US Treasury Department to restrict US banks from providing dollars to Hong Kong and Chinese banks.
However, this may not be possible, as China is likely to retaliate by affecting US assets, such as government bonds and stocks.
`Instability in the USD-based financial ecosystem could spark a wave of sell-offs in the US stock market. This is the consequence the White House wants to avoid before the election,` Innes concluded.
