Experts Play Down Report On US Targeting Dollar Peg

White House aides are considering undermining the Hong Kong dollar's peg to the greenback as part of efforts to punish China over its new security law in the city, a report said on Wednesday, but experts say such a move is unlikely.

Bloomberg News said the idea from some officials to put a strain on the 37-year-old peg – possibly by limiting local banks' access to US dollars – was one of a number of measures flagged as Washington looks at ways to respond to the controversial law.

However, it cited unnamed sources as saying the move had not been discussed at senior levels of the Trump administration, while analysts said such a measure was unlikely owing to the upheaval it would cause to global markets.

Other measures being discussed included cancelling a US-Hong Kong extradition treaty and no longer cooperating with the city's police force, Bloomberg said.

Hong Kong dollar was linked to the greenback in 1983 in a bid to prevent a sell-off as it wobbled over fears about China's reunification talks with Britain.

Under the city's Linked Exchange Rate System, the HKMA is required to maintain the local currency around HK$7.8 to US$1 to ensure exchange rate stability.

Stephen Innes at AxiCorp said the US was unlikely to do anything to hurt the peg as, firstly, it could put at risk the vast amount of assets held by China, particularly Treasuries.

"Second, such a move could destabilise dollar pegs elsewhere, including US allies around the world, especially those in the Middle East," said Innes. 

"Third, the unthinkable instability that it would trigger in the dollar-based global financial ecosystem could drive a selloff in US equity markets – an outcome abhorrent to the White House ahead of the November presidential election." (AFP)