Hong Kong Monetary Authority (HKMA) Continues Buying HK Dollars, and the Bank Balance Falls to 106.6 Billion HK Dollars

According to a local report on October 13th, the HK dollar hit the weak end of its trading band. The HK Monetary Authority re-entered the market the same day and bought the HK dollar to maintain the faltering exchange rate.

At the end of the New York Stock Exchange (NYSE) trading session, HK’s foreign exchange market bore close to 11.7 billion HK dollars of selling orders in the early morning, and the banking system’s balance fell to about 106.6 billion HK dollars on Friday. It has been the HKMS’ 36th takeover since mid-May, with a total of about HK$231.6 billion in selling orders.

The banking system’s balance refers to the one after daily settlement for the account opened by HK registered bank in the HKMA. In 1998, the HKMA assured licensed banks that they could convert HK dollars in bank settlement accounts into US dollars at a fixed exchange rate of HK$7.75 to US$1.

This commitment is the so-called “conversion guarantee. “The increase or decrease in the aggregate balance of the banking system reflects the fund flow. If the total balance increases, the HK dollar funds continue to stay within the HK dollar system, which benefits the HK stocks. On the contrary, the falling balance indicates that foreign capital and funds have been withdrawn from the HK dollar market, and the HK stock market is under downward pressure. Industry insiders believe that the most intuitive indicator of market changes is not the bank balances but the market confidence in HK.