.Think About This If You Own Hong Kong Dollars

Notes From The Field By Simon Black

September 3, 2019   Bahia Beach, Puerto Rico

Think About This If You Own Hong Kong Dollars

On January 20, 1841, after delivering a series of military defeats to Imperial China in the First Opium War, British forces landed in Hong Kong and took control of the island.

Hong Kong was hugely important for the British economy because it ensured access to the Chinese market. And they went to war multiple times to keep control of the island.

In 1898 the two empires signed a lasting peace treaty whereby Britain agreed to turn the island over to China in 1997. And Hong Kong prospered for decades under British rule.

But by early 1980s, Hong Kong started experiencing more turbulent times.

International businesses, bankers, and traders were becoming concerned about the Chinese handover that would take place 15 years later.

And when China’s Deng Xiaoping expressed his desire to hit the gas pedal on Hong Kong’s return to China, investors panicked.

Between September 1982 and September 1983, the Hong Kong dollar lost 25% of its value against the US dollar. Within a week, by early October, it had lost another 15% of its value. And it continued losing ground by the day.

The currency was in free-fall. So in mid-October 1983, the Hong Kong government stabilized the currency by fixing the exchange rate to the US dollar.

It has remained that way for the past 36 years.

This ‘pegged’ exchange rate provided a lot of benefit to Hong Kong back then, helping cement its status as an international financial center.

And I’ve been writing about this for years: the pegged exchange rate means that the Hong Kong dollar has all the benefits of the US dollar, without any of the baggage.

The US dollar has international recognition and stability. Hong Kong’s currency is pegged to the US dollar, so it shares those benefits too.

But while the United States is drowning in debt with $50+ trillion in unfunded pension liabilities, Hong Kong has massive financial reserves, positive cash flow, and a healthy current account surplus.

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https://www.sovereignman.com/trends/think-about-this-if-you-own-hong-kong-dollars-25532/

To your freedom, Simon Black Founder, SovereignMan.com