Whereas U.S. President Donald Trump might realistically assault the Hong Kong greenback’s peg to the dollar, the fee could be “very excessive,” stated Becky Liu, head of China macro technique at Customary Chartered Bank.Final week, Bloomberg reported that Trump aides had dropped the thought on account of insufficient help and issues about implementation in addition to whether or not the transfer would backfire. Bloomberg had beforehand reported that prime advisors had thought-about undermining the peg in weighing potential retaliation for China imposing a nationwide safety legislation in Hong Kong.Two strategies the White Home might use to wreck the peg would seemingly backfire, Liu instructed CNBC’s “Street Indicators” on Wednesday.One method would contain the U.S. undermining Hong Kong exchange funds’ potential to carry U.S. dollar-denominated belongings, stated Liu. “However impacting one of many world’s largest reserve managers’ potential to carry U.S. greenback reserve belongings would critically undermine U.S. greenback’s function because the worldwide reserve forex,” she added.The Trump administration might additionally undercut Hong Kong banks’ potential to acquire the dollar or strip them of their potential to conduct greenback clearing actions. However that will damage the worldwide monetary markets “too severely” and will result in a world monetary disaster, she added.The market nevertheless shouldn’t rule out the chance that the Trump administration might limit some banks —notably Hong Kong branches of Chinese language banks — from accessing U.S. greenback liquidity or from conducting greenback funds, she stated.’Hong Kong greenback is China’s U.S. greenback’Amid geopolitical tensions between the U.S. and China, Liu stated the “Hong Kong greenback is China’s U.S. greenback.”Final week, Trump signed laws to impose sanctions on China. The legislation, dubbed the Hong Kong Autonomy Act, would slap necessary sanctions on Chinese language officers and firms that helped again Beijing’s imposition of a safety legislation. Secretary of State Mike Pompeo has repeatedly criticized the nationwide safety legislation in Hong Kong, calling it “Orwellian.”Liu stated firms on the U.S. entity checklist would wish to keep away from some direct greenback danger publicity — and the Hong Kong greenback has turn out to be the very best various.With Chinese language firms doubtlessly delisting from U.S. exchanges, the Hong Kong market has turn out to be the very best various for firms trying to elevate funds in foreign currency aside from the Chinese language yuan.As Hong Kong’s international exchange reserves are among the many largest globally, the forex of the Chinese language particular administrative territory is “tough to assault,” stated Liu.”As such, it has turn out to be one of many various greatest currencies for these Chinese language firms who can not keep away from U.S. greenback forex danger, however it has turn out to be more and more extra dangerous for them to be immediately holding U.S. greenback or U.S. greenback account.”As a result of slender band through which the Hong Kong greenback is buying and selling in, “holding (the) Hong Kong greenback is nearly equal by way of holding U.S. greenback with regards to forex publicity and we anticipated Hong Kong greenback to play a a lot bigger function amid these geopolitical tensions.”— CNBC’s Weizhen Tan contributed to this report.
