15 min read What is the Hong Kong dollar's peg to the US dollar?
It is a currency board: since 17 October 1983, the Hong Kong dollar has been anchored to the US dollar at 7.80, and the whole of Hong Kong's Monetary Base is backed by US dollar assets. The arrangement has an official name, the Linked Exchange Rate System, and an address: the Hong Kong Monetary Authority, or HKMA, which runs it day to day.
The difference between a currency board and a plain fixed rate is fundamental, and it explains the system's longevity. A country that announces a fixed rate is making a promise: it will defend that rate for as long as it has the means to do so, and the market spends its time assessing those means. A currency board makes no promise — it posts collateral. Every Hong Kong dollar created corresponds to a US dollar asset deposited with the Exchange Fund, and every change in the Monetary Base is fully matched by an equivalent change in foreign reserves. The question “will the HKMA have enough dollars?” does not mean the same thing as it does for an ordinary central bank: by construction, it has as many as there are Hong Kong dollars in the system.
The orders of magnitude give the measure of that collateral. At the close of the review period ended 22 June 2026, the HKMA reported a Monetary Base of HK$2,072.94 billion, roughly US$266 billion at the rate of 7.80. Against that, Hong Kong's official foreign currency reserve assets published by the HKMA stood at US$447.8 billion at the end of July 2026, against US$445.9 billion at the end of June — the equivalent of more than five times the currency in circulation, and about 38% of Hong Kong dollar M3. The official backing ratio of the Currency Board Account, which compares backing assets to the Monetary Base, came to 111.84% at the end of June 2026, up from 111.66% at the end of May.
A band, not a single rate
The most common mistake is to say that “the HKD is worth 7.80 dollars”. The 7.80 rate is the reference rate, not the market rate. Since May 2005, the HKMA has framed the rate with two convertibility undertakings, symmetrical around that pivot:
- the strong-side Convertibility Undertaking, at 7.75: if the HKD strengthens to that level, the HKMA undertakes to sell Hong Kong dollars to banks against US dollars;
- the weak-side Convertibility Undertaking, at 7.85: if the HKD weakens to that point, the HKMA undertakes to buy Hong Kong dollars against US dollars.
Between the two, the rate floats freely. The maximum theoretical amplitude is therefore 1.3%, which places the Hong Kong dollar among the most stable currencies in the world against the US dollar. Before the May 2005 reform, the weak-side bound sat at 7.80: the arrangement was asymmetrical, and introducing the strong-side bound at 7.75 was precisely aimed at restoring symmetry around the Linked Rate. Over the period from 23 April to 22 June 2026, the HKMA reported a trading range of 7.8289 to 7.8397, with neither bound touched. On 21 August 2026, the reference rate stood at 7.8405: in the weaker half of the band, but still inside it.
Who actually issues Hong Kong banknotes?
Not the central bank. The 20, 50, 100, 500 and 1,000 dollar notes are issued by three commercial banks — HSBC, Standard Chartered Bank (Hong Kong) and Bank of China (Hong Kong) — while the Government issues the 10 dollar notes and the coins. To put a banknote into circulation, an issuing bank must deposit the equivalent value in US dollars with the Exchange Fund, at the rate of 7.80, and receives a Certificate of Indebtedness in exchange. The operation is reversible on the same terms. This is the concrete expression of Article 111 of the Basic Law, which requires the issue of Hong Kong currency to be backed by a 100% reserve fund and allows the Government to authorise designated banks to issue. Those certificates are one of the four components of the Monetary Base, together with government-issued notes and coins, the Aggregate Balance and Exchange Fund Bills and Notes.
Forty-three years of anchoring, and five regimes before it
The peg is no immemorial tradition: it is Hong Kong's sixth monetary regime since 1863, and it was born of an emergency. In the autumn of 1983, the Sino-British negotiations over the territory's future were sending the currency into freefall; the anchor was adopted to stop the slide. The table below sets out the milestones, as recorded in the HKMA's chronology of monetary reform.
| Period | Regime | Rate or reference |
|---|---|---|
| 1863 – 1935 | Silver standard | Silver dollars declared legal tender; the currency is defined in terms of silver |
| Dec. 1935 – June 1972 | Sterling standard | HK$16 to the pound, then HK$14.55 after sterling's devaluation in November 1967 |
| July 1972 – Nov. 1974 | Fixed rate against the US dollar | HK$5.65 to 1 USD with an intervention band of plus or minus 2.25%, then HK$5.085 in February 1973 |
| Nov. 1974 – Oct. 1983 | Free float | Adopted after the collapse of the Bretton Woods system |
| 17 Oct. 1983 – today | Currency board (Linked Exchange Rate System) | HK$7.80 to 1 USD, with full backing in dollars |
| May 2005 | Three refinements to the arrangement | Creation of the strong-side bound at 7.75 and shift of the weak-side bound from 7.80 to 7.85, to achieve a symmetrical band |
How does the HKMA hold this rate without ever setting an interest rate?
It does not steer the rate: it guarantees two prices, and lets Hong Kong interest rates do all the adjusting. This is what the HKMA calls the automatic interest rate adjustment mechanism, and it is the intellectual core of the system. No committee meets in Hong Kong to decide on a policy rate in the sense that the Swiss National Bank or the European Central Bank does.
The mechanism rests on a single variable: the Aggregate Balance, that is, the sum of the balances Hong Kong banks hold on their clearing accounts with the HKMA. It is the liquidity available in the interbank market, and it is one of the four components of the Monetary Base. When it swells, money becomes abundant and interbank rates — the HIBORs — fall. When it contracts, money becomes scarce and the HIBORs rise.
Inflows: the rate reaches 7.75
Demand for Hong Kong dollars exceeds supply. The HKMA sells HKD to banks against USD. The Aggregate Balance expands, HIBORs fall, holding HKD pays less, demand recedes and the rate moves away from the strong-side bound back into the band.
Outflows: the rate reaches 7.85
Supply of Hong Kong dollars exceeds demand. The HKMA buys HKD against USD. The Aggregate Balance contracts, HIBORs rise, holding HKD pays more, outflows dry up and the rate moves away from the weak-side bound.
The consequence of this design is direct, and it is the expensive part: Hong Kong imports US monetary policy. The impossible trinity, in monetary economics, says you cannot have a fixed exchange rate, complete freedom of capital movement and an autonomous monetary policy all at once. Hong Kong chose the first two — Article 112 of the Basic Law in fact prohibits any foreign exchange control and guarantees the free flow of capital — and gave up the third. The Base Rate of Hong Kong's discount window, derived from the US policy rate, stood at 4.00% in August 2026. It is not the outcome of a diagnosis of the Hong Kong economy: it is the reflection of a vote on the Federal Reserve's policy committee.
On 21 August 2026, the snapshot of the system looked like this: Aggregate Balance at HK$53.97 billion, overnight HIBOR at 2.50%, one-month HIBOR at 2.686%, Base Rate at 4.00%. No intervention had taken place for a year, and in its report of 2 July 2026 on Currency Board operations the HKMA noted that the Convertibility Undertakings had not been triggered and that the Hong Kong dollar exchange and interbank markets had continued to trade in a smooth and orderly manner.
What happened in 2025, when the peg hit both bounds in three months?
The system ran through its entire cycle in a single summer: strong side in early May, collapse in rates, a massive carry trade, weak side by late June, then eleven successive interventions to restore balance. It is the best available case study of how a currency board actually works, and it is recent.
It began on 7 and 8 May 2025. An influx of capital into Hong Kong assets pushed the rate to the strong-side bound of 7.75. In line with its undertaking, the HKMA sold Hong Kong dollars against US dollars — for a cumulative amount of roughly HK$129 billion over two sessions. The Aggregate Balance, which had been hovering around 45 billion since the start of the year, jumped to HK$174.1 billion. The system was suddenly awash with liquidity.
What followed was mechanical. By the end of June 2025, overnight HIBOR had fallen to 0.01% and one-month HIBOR to 0.73%, while Hong Kong's Base Rate, tied to US rates, stayed at 4.75%. Borrowing Hong Kong dollars cost nothing, and placing the proceeds in US dollars paid more than four points. The carry trade became irresistible: traders borrowed HKD, sold it for USD and pocketed the yield differential. The rate ran the other way and reached the weak-side bound of 7.85.
From 27 June to 15 August 2025, the HKMA then bought back Hong Kong dollars in eleven successive operations, for roughly HK$120 billion in total. The Aggregate Balance came back down to HK$53.7 billion. One-month HIBOR climbed from 0.73% at the end of June to 3.30% at the end of August. The rate left the weak-side bound. Since 15 August 2025, no further intervention has been needed and the Aggregate Balance has remained stable at around 54 billion.
| Date | Event | Aggregate Balance | 1-month HIBOR |
|---|---|---|---|
| 30 April 2025 | Starting point, rate mid-band | HK$45.1 billion | 3.95% |
| 7 and 8 May 2025 | Strong-side bound 7.75 triggered — the HKMA sells roughly HK$129 billion | HK$174.1 billion | 0.59% (end of May) |
| 30 June 2025 | Peak liquidity, carry trade at its height | HK$164.1 billion | 0.73% |
| 27 June – 15 Aug. 2025 | Weak-side bound 7.85 triggered — eleven successive buy-backs, roughly HK$120 billion withdrawn | HK$53.7 billion | 3.30% (end of August) |
| 23 April – 22 June 2026 | No bound triggered, range of 7.8289 to 7.8397 | About HK$54 billion | 2.44% to 2.94% |
| 21 August 2026 | Reference rate at 7.8405 | HK$53.97 billion | 2.686% |
The lesson of that episode fits into a single sentence: the rate never left the band, but the price of money was multiplied by four and a half in two months. That is exactly what the mechanism is supposed to produce. A currency board does not remove the shock, it relocates it: what the exchange rate does not do, the interest rate does instead. For a Hong Kong household whose mortgage is indexed to HIBOR, the summer of 2025 was not a monetary non-event, it was a sharp increase in interest costs, without notice and without any local decision.
Why is income in Hong Kong dollars really income in US dollars?
Because the peg only fixes the HKD against one currency: against all the others, including the Swiss franc, it reproduces the US dollar's path exactly. This is the regime's most concrete consequence for anyone who earns, saves or invoices in Hong Kong dollars while living in Geneva, Lausanne, Zurich or Basel.
The reasoning is arithmetic. If 1 USD is always worth between 7.75 and 7.85 HKD, then the value of a Hong Kong dollar in Swiss francs is entirely determined by the USD/CHF pair, give or take a factor that barely moves. When the US dollar falls 10% against the franc, the Hong Kong dollar falls 10% against the franc, with no Hong Kong decision involved. The table below sets the two realities side by side over almost seven years, using European Central Bank reference rates.
| Date | USD/HKD (the anchored rate) | USD/CHF | HKD per 1 CHF |
|---|---|---|---|
| 2 January 2020 | 7.7909 | 0.9707 | 8.026 |
| 4 January 2021 | 7.7529 | 0.8792 | 8.818 |
| 3 January 2022 | 7.7975 | 0.9134 | 8.536 |
| 2 January 2023 | 7.8058 | 0.9242 | 8.446 |
| 2 January 2024 | 7.8139 | 0.8493 | 9.200 |
| 2 January 2025 | 7.7765 | 0.9080 | 8.565 |
| 2 January 2026 | 7.7919 | 0.7931 | 9.825 |
| 21 August 2026 | 7.8405 | 0.7995 | 9.807 |
The middle column does not move: from one end to the other, the anchored rate stays locked inside its band. The right-hand column, by contrast, has shifted from 8.03 to 9.81 — a loss of roughly 18% for the Hong Kong dollar against the Swiss franc in six and a half years. A holder of HKD based in Switzerland did not take on Hong Kong risk: they took on, in full and with no cushion, the fall of the US dollar against the franc.
Worked example — a Hong Kong salary of 40,000 HKD a month, seen from Switzerland
On 2 January 2020, at 8.026 HKD to 1 franc, that salary is worth 4,984 CHF. On 21 August 2026, at 9.807 HKD to 1 franc, it is worth 4,079 CHF. The employment contract has not changed, the employer has changed nothing, the anchored rate has stayed inside its band — and purchasing power in francs has shrunk by 905 CHF a month, or roughly 10,860 CHF a year. An expatriate repaying a loan in francs, paying maintenance in Switzerland or funding a third pillar has seen that burden rise by about a fifth in terms of Hong Kong salary, without ever reading a line about the Hong Kong dollar in the financial press.
The operational conclusion is counter-intuitive but clear: if your flows run from HKD to CHF, the figure to watch is not the Hong Kong dollar, it is the USD/CHF pair. Following the Hong Kong market will tell you nothing useful about the future value of your income in francs; analysing the US dollar will tell you almost everything. Our guide to the USD/CHF forecast for 2026 describes the current drivers of that pair, and the one on how to lock an exchange rate forward covers the instrument that fixes a future conversion, the only real protection when income is structurally denominated in a currency you do not spend. For the arithmetic itself, the guide on how to calculate an exchange rate explains the cross-rate conversion that is precisely at work here.
What impact does the peg have on the real cost of an HKD to CHF conversion?
The peg concentrates all Hong Kong dollar liquidity into a single pair, the one with the US dollar — which forces any conversion into Swiss francs to execute in two legs, and therefore to carry two margins. This is the regime's hidden cost, and it is structural, not cyclical.
The reason lies in how the market is organised. A currency board makes the US dollar the HKD's natural and near-exclusive counterpart: that is where the volumes, the market makers and the tight prices are. Hong Kong's settlement system reflects that reality — CHATS clears the Hong Kong dollar, the US dollar, the renminbi and the euro, but not the Swiss franc. There is therefore no deep interbank market between the HKD and the CHF. In practice, the institution executing your order sells your HKD for USD, then sells those USD for CHF, and applies its margin to each of the two operations.
That margin appears nowhere on the statement: it is built into the rate applied. This is why a transaction whose market risk is objectively minimal — the HKD cannot stray more than 1.3% from its pivot — commonly ends up costing 1.5 to 2% in total. The price paid does not compensate a risk, it pays for a route.
Worked example — 500,000 HKD repatriated to a franc account
At the indicative rate of 9.807 HKD to 1 franc observed on 21 August 2026, 500,000 HKD represent roughly 50,983 CHF. With a combined double margin of 1.5%, the cost of the conversion comes to 765 CHF. The same operation with ibani, whose tiered grid applies 0.30% in the 50,000 to 100,000 CHF bracket, comes to about 153 CHF — a difference of roughly 612 CHF on a single transaction. On a recurring flow, a monthly salary or quarterly supplier payments for instance, the gap compounds mechanically.
Two habits cut the bill. The first is to group movements rather than split them: because margin grids are tiered, four conversions of 125,000 HKD cost more than a single one of 500,000. The second is to check the rate actually applied rather than the commission advertised — a “no commission” claim on a two-leg operation is almost always a shift of the price into the rate. Our CHF/HKD converter displays the real market rate for that pair, which gives you the benchmark to hold any proposal against.
Remote account opening, a free personal Swiss IBAN, 12 currencies including the HKD, no transfer fees and a tiered exchange margin from 0.40% down to 0.15% depending on the amount. ibani is a Swiss financial intermediary established in Geneva since 2018, not a bank: the aim is not to replace your Hong Kong institution, but to shorten the journey between your Hong Kong dollars and your franc account.
Discover the offer for expats →Could the peg be abandoned, and what would that change for your assets?
Nothing in the data published in 2026 points to it being called into question: the capacity to defend it is intact, and the real debate is not about the system's soundness but about its cost. The question still deserves to be taken seriously, because it comes back with every episode of tension and is regularly framed wrongly.
On capacity, the figures are unambiguous. Against a Monetary Base of HK$2,072.94 billion — roughly US$266 billion at the rate of 7.80 — the HKMA held US$447.8 billion of foreign currency reserve assets at the end of July 2026, close to 1.7 times what would be needed to buy back the entire Monetary Base. The official backing ratio of the Currency Board Account, at 111.84% at the end of June 2026, says the same thing differently: backing assets exceed the commitment. And the 2025 episode demonstrated that the mechanism works both ways, without discretion or hesitation.
The real debate lies elsewhere. It is about the price of the anchor, which is the surrender of all monetary autonomy. Hong Kong takes rates set to the US cycle while its own economic cycle, increasingly tied to mainland China's, does not necessarily coincide. That is a choice made deliberately since 1983, and regularly reaffirmed by the HKMA. As for the hypothesis of re-pegging to the renminbi, it runs into a decisive technical obstacle: a currency board requires an anchor currency that is fully convertible and a market that is deep in all circumstances, which the renminbi does not offer today.
For a holder of HKD assets living in Switzerland, the practical conclusion is therefore not to guard against a break in the peg, but to handle the risk that genuinely exists.
- Treat your HKD as US dollars in your asset allocation. Adding an “HKD” bucket and a “USD” bucket as two separate exposures means understating your concentration in the dollar.
- Track USD/CHF, not the HKD. The anchored rate contains no usable information about the future value of your assets in francs.
- Do not confuse volatility with cost. The margin paid on an HKD to CHF conversion does not depend on the stability of the HKD: it depends on the number of legs in the operation and on how transparent the applied rate is.
- Sequence your large conversions around USD/CHF rather than around an administrative deadline, whenever the calendar leaves you that freedom — and consider a forward rate when it does not.
- Group your flows to benefit from tiered margins, rather than multiplying small operations.
These habits are the natural extension of the neighbouring guides in our library. If your HKD exposure comes from an assignment that is ending, the guide on repatriating end-of-assignment capital from Hong Kong to Switzerland sets out the release calendar, the tax clearance process and the Swiss regulatory framework on receipt of the funds. If it comes from an operating structure, our guide to Hong Kong corporate taxation and the Profits Tax details the provisional payment mechanism and the treatment of flows into Europe. And for treasurers running several currencies in parallel, the guide to multi-currency accounting covers the matching and exchange differences that an anchored exposure still produces in accounts kept in francs.
Frequently Asked Questions
What is the Hong Kong dollar's peg to the US dollar?
It is a currency board, meaning an exchange rate regime in which the local currency is fully backed by a foreign currency. Since 17 October 1983, the Hong Kong dollar has been anchored to the US dollar at a rate of 7.80 HKD to 1 USD. The system is officially called the Linked Exchange Rate System. What makes it distinctive is not the headline rate but the collateral behind it: Hong Kong's Monetary Base is backed 100% by US dollar assets held in the Exchange Fund, and every change in that Monetary Base is matched by an equivalent change in foreign reserves. As at 22 June 2026, the Monetary Base stood at HK$2,072.94 billion, and official foreign currency reserve assets came to US$447.8 billion at the end of July 2026, more than five times the currency in circulation. The backing ratio published by the HKMA was 111.84% at the end of June 2026.
At what rate is the Hong Kong dollar pegged to the US dollar?
The central rate is 7.80 HKD to 1 USD, but the market rate is not fixed at that level: it moves freely within a Convertibility Zone of 7.75 to 7.85. This symmetrical band has been in place since May 2005. The Hong Kong Monetary Authority undertakes to sell Hong Kong dollars to banks at 7.75, which is known as the strong-side Convertibility Undertaking, and to buy Hong Kong dollars at 7.85, the weak-side Convertibility Undertaking. The maximum amplitude of the rate is therefore 1.3%, which makes the Hong Kong dollar one of the most stable currencies in the world against the US dollar. Before May 2005 the weak-side bound sat at 7.80, which made the arrangement asymmetrical. Over the period from 23 April to 22 June 2026, the HKMA reported a trading range of 7.8289 to 7.8397, with neither bound being triggered.
Why does the Hong Kong dollar fall against the Swiss franc if its rate is fixed?
Because it is only fixed against one currency. The peg stabilises the Hong Kong dollar solely against the US dollar: against every other currency, including the Swiss franc, the HKD reproduces the US dollar's path exactly, rises and falls alike. Someone holding Hong Kong dollars while living in Swiss francs is therefore not carrying a Hong Kong risk, but a dollar risk. The figures are unambiguous. On 2 January 2020, 8.03 HKD bought 1 Swiss franc. On 21 August 2026, it takes 9.81. The Hong Kong dollar lost roughly 18% against the franc over the period, while never leaving its 7.75 to 7.85 band against the US dollar. The figure to watch for an HKD to CHF flow is therefore not the Hong Kong dollar, but the USD/CHF pair.
Could the Hong Kong dollar peg be abandoned?
Nothing in the data published in 2026 points to it being called into question. The capacity to defend it is intact: US$447.8 billion of foreign currency reserve assets at the end of July 2026, against a Monetary Base of HK$2,072.94 billion, or roughly US$266 billion at the rate of 7.80. Reserves therefore amount to close to 1.7 times what would be needed to buy back the entire Monetary Base. The official backing ratio published by the HKMA reached 111.84% at the end of June 2026, and Article 111 of the Basic Law requires the issue of currency to be backed by a 100% reserve fund. The real cost of the peg is not a risk of rupture, it is the loss of monetary autonomy: Hong Kong imports US policy rates, as the 2025 episode showed. Re-pegging to the renminbi would require the Chinese currency to be fully convertible, which it is not today.
Why does converting HKD into Swiss francs go through the US dollar?
Because the peg concentrates all Hong Kong dollar liquidity into a single pair, the one with the US dollar. There is no deep interbank market between the HKD and the CHF, and Hong Kong's CHATS settlement system handles the Hong Kong dollar, the US dollar, the renminbi and the euro, but not the Swiss franc. An HKD to CHF conversion therefore executes in two legs, HKD to USD and then USD to CHF, and each leg carries its own margin, built into the rate and invisible on the statement. That is how a transaction whose market risk is objectively minimal commonly ends up costing 1.5 or even 2% in total. On 500,000 HKD, or roughly 50,983 CHF at the indicative rate of 9.807 HKD to 1 CHF on 21 August 2026, a 1.5% margin amounts to 765 CHF. The same transaction with ibani, whose tiered grid applies 0.30% in that bracket, costs about 153 CHF, a difference of roughly 612 CHF.