The Hong Kong dollar peg explained: how the 7.75–7.85 band works

The Hong Kong dollar has been linked to the US dollar since 17 October 1983 under the Linked Exchange Rate System. The Hong Kong Monetary Authority (HKMA) keeps the exchange rate within a band of HK$7.75 to HK$7.85 per US dollar.

How the system works

Hong Kong runs a currency board. Its key commitments are the two Convertibility Undertakings:

• Strong side, 7.75: if demand for Hong Kong dollars pushes the rate to 7.75, the HKMA sells Hong Kong dollars to banks in exchange for US dollars.
• Weak side, 7.85: if selling pushes the rate to 7.85, the HKMA buys Hong Kong dollars from banks with US dollars.

The band has been set at 7.75 to 7.85 since 2005.

When the HKMA buys Hong Kong dollars at the weak side, banks' Hong Kong dollar balances with the HKMA, known as the Aggregate Balance, shrink. Local interest rates tend to rise as a result, which makes holding Hong Kong dollars more attractive and pulls the rate back into the band. Selling at the strong side has the opposite effect. The HKMA describes this automatic interest rate adjustment, together with its firm commitment to honour the undertakings, as what keeps the exchange rate stable.

Why it matters for traders

• USD/HKD barely moves compared with floating pairs, but it isn't frozen: it can travel across the whole band over months.
• Interest rates follow the US. With the currency linked to the dollar, Hong Kong effectively imports US monetary policy, and gaps between Hong Kong and US interest rates drive flows within the band.
• The carry trade pushes on the band. When Hong Kong rates are well below US rates, borrowing Hong Kong dollars to hold US dollars pushes the rate toward 7.85, which often brings weak-side intervention (the carry trade).
• Trading is growing. Turnover in USD/HKD rose 95% between the 2022 and 2025 BIS surveys, reaching 3.6% of global foreign exchange trading.
• A break is a tail risk. The HKMA has defended the link through many crises, including the Asian financial crisis, and the system has lasted more than 40 years.

Other pegs and managed currencies

• Danish krone: kept close to the euro within ERM II (the euro explained).
• Saudi riyal: pegged to the US dollar at 3.75.
• Chinese yuan: managed around a daily central parity rate set by the People's Bank of China, with trading allowed within a band around it.

Pegged currencies can look calm for years, but when a peg or floor is abandoned the move is usually sudden, as the Swiss franc shock of 2015 showed. For how pegs are defended, see currency intervention explained.