| | | Hong Kong Currency Defies Volatility of Street Protests | | The recent protests in Hong Kong highlight an uneasy calm that blanketed the territory since China resumed sovereignty from the United Kingdom in 1997. The current issue is a controversial proposed extradition law. In 2014, protestors challenged the structure of elections. | | As is always the case, a certain amount of sociopolitical unrest bleeds over into economics, which is sometimes the cause and sometimes the effect. Hong Kong occupies a unique place in the global trading and finance system. Even though it is part of China, the special administrative region has its own legislature, judiciary and currency. The Hong Kong dollar is pegged to the U.S. dollar. It differs from the Chinese yuan, which can actually appreciate or depreciate in very tight ranges and can take time to move. China also focuses its currency peg on a basket of currencies, rather than just the greenback. | | Having that peg has been important in the last few decades in order to provide a stable environment for trade, but any peg has a downside. One of the big ones is that the economy effectively loses its monetary policy in that the anchor currency – the U.S. dollar in this case – has a high degree of influence over the economy with the peg. Pressure comes from investors that carry trades, who borrow in a low-interest economy and loan out funds in a higher interest economy. | | Watch the video | | If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. | | Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos! | | | | | | | Follow City National Bank on social media: | | | | | | Non-deposit investment products: | | • | Are not FDIC insured, | | • | Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and | | • | Are subject to investment risks, including possible loss of the principal invested. | | | | | This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting. | | | | | | |
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