Lessons From 1997 Show It's Scary Being a Hong Kong Dollar Bear
- Defense of the peg back then saw interbank rates soar
- This time, HKMA has significant currency reserves to draw on
Photographer: Justin Chin/Bloomberg
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As the Hong Kong dollar sinks toward the weak end of its trading band, it’s worth looking back to 1997 for lessons of how the authorities may respond. What was back then a currency peg has since been replaced by a band, but that will not alter the determination of the Hong Kong Monetary Authority to defend it.
Although Hong Kong avoided the initial wave of currency attacks that began in July 1997 with the Thai baht’s devaluation, the city’s turn came in October. Excessive optimism in the Hang Seng Index quickly turned into panic selling and triggered a run on the currency. But the HKMA proved a brutal opponent for speculators to take on.