CNBC reports that while U.S. President Donald Trump could realistically attack the Hong Kong dollar’s peg to the greenback, the cost would be “very high,” said Becky Liu, head of China macro strategy at Standard Chartered Bank.
Last week, Bloomberg reported that Trump aides had dropped the idea due to inadequate support and concerns about implementation as well as whether the move would backfire. Bloomberg had previously reported that top advisors had considered undermining the peg in weighing potential retaliation for China imposing a national security law in Hong Kong.
Two methods the White House could use to damage the peg would likely backfire, Liu told CNBC on Wednesday.
One approach would involve the U.S. undermining Hong Kong exchange funds’ ability to hold U.S. dollar-denominated assets, said Liu. “But impacting one of the world’s largest reserve managers’ ability to hold U.S. dollar reserve assets would seriously undermine U.S. dollar’s role as the international reserve currency,” she added.
The Trump administration could also undercut Hong Kong banks’ ability to obtain the greenback or strip them of their ability to conduct dollar clearing activities. But that would hurt the international financial markets “too severely” and could bring about an international financial crisis, she added.
The market however should not rule out the possibility that the Trump administration could restrict some banks —particularly Hong Kong branches of Chinese banks — from accessing U.S. dollar liquidity or from conducting dollar payments, she said.
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