way back in October 1983 a young Hong
Kong broke was working one Saturday when
his boss rushed through yelling and
everyone to buy Hong Kong dollars within
hours the authorities pegged the
currency to the US dollar at a tiny
profit for those local currency holders
then and since Hong Kong dollar weakness
is typically been related to fears about
its relations with China but now the
currency is nearing its weakest point in
a decade and for once the city's future
is not the reason the Hong Kong dollar
slide is really a side effect of years
of worldwide easy money the territories
in the unique position of having
monetary policy pegged to the US as
future prospects tied to China over the
past decade those two factors have
produced a massive boom and several
bubbles Hong Kong's position is the
world's most expensive property market
where car parks sell for three billion
dollars is just one example
now with China slowing in the u.s.
raising rates this in theory should
attract the city between a rock and a
hard place
but that hasn't happened because so much
money is still available that is banks
haven't needed to follow the Hong Kong
Monetary Authority in tracking u.s. rate
rises on Monday the gap between
three-month money in the US and its Hong
Kong equivalent hit the widest point
since the aftermath of Lehman Brothers
collapse in 2008 also on Monday the US
dollar traded above 7.8 to Hong Kong
dollars only the third time in ten years
the question now is how the HKMA will
manage its defense the peg if the
currency near the weaker edge of its
permitted range between seven point
seven five and seven point eight five
with four hundred billion US dollars in
reserves it has the funds available and
few if any expect breaking the peg the
HKMA does not even have to wait until
the limited breach of sell dollars and
it might do so soon if it feels that
will help ease market jitters but the
real problem here in those markets
themselves years of easy money risk
having bred complacency the weak side of
the peg has not been tested since 2005
either back in 1983 Hong Kong's traders
were used to uncertainty and expensive
money both today or not but they might
want to think about what that looks like