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09-03-2018, 01:06 PM
Lessons From 1997 Show It's Scary Being a Hong Kong Dollar Bear
By Mark Cranfield
March 9, 2018, 1:00 AM GMT+8
As the Hong Kong dollar sinks toward the weak end of its trading band, it’s worth looking back to 1997 for lessons of how the authorities may respond. What was back then a currency peg has since been replaced by a band, but that will not alter the determination of the Hong Kong Monetary Authority to defend it.
Although Hong Kong avoided the initial wave of currency attacks that began in July 1997 with the Thai baht’s devaluation, the city’s turn came in October. Excessive optimism in the Hang Seng Index quickly turned into panic selling and triggered a run on the currency. But the HKMA proved a brutal opponent for speculators to take on.
On the day that the fight reached a climax, overnight interest rates were allowed to climb to 300 percent as the HKMA held back from putting liquidity into the interbank market. This was enough to kill off the hedge fund attack as local banks could only raise funding for their own needs, so there were no Hong Kong dollars left to finance short sellers.
More details in https://www.bloomberg.com/news/articles/...ollar-bear
By Mark Cranfield
March 9, 2018, 1:00 AM GMT+8
As the Hong Kong dollar sinks toward the weak end of its trading band, it’s worth looking back to 1997 for lessons of how the authorities may respond. What was back then a currency peg has since been replaced by a band, but that will not alter the determination of the Hong Kong Monetary Authority to defend it.
Although Hong Kong avoided the initial wave of currency attacks that began in July 1997 with the Thai baht’s devaluation, the city’s turn came in October. Excessive optimism in the Hang Seng Index quickly turned into panic selling and triggered a run on the currency. But the HKMA proved a brutal opponent for speculators to take on.
On the day that the fight reached a climax, overnight interest rates were allowed to climb to 300 percent as the HKMA held back from putting liquidity into the interbank market. This was enough to kill off the hedge fund attack as local banks could only raise funding for their own needs, so there were no Hong Kong dollars left to finance short sellers.
More details in https://www.bloomberg.com/news/articles/...ollar-bear
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