Linked exchange rate system in Hong Kong

The exchange rate is instead stabilized by an exchange mechanism, whereby the Hong Kong Monetary Authority (HKMA) authorises note-issuing banks to issue new banknotes provided that they deposit an equivalent value of US dollars with the HKMA.

[1] The redemption of certificates of indebtedness (for backing the banknotes) were sent out by note-issuing banks to peg the domestic currency against the US dollar at an internal fixed rate of HK$7.80 = US$1.

[3] Since 5 September 1998, the HKMA has provided an explicit convertibility undertaking to all licensed banks in Hong Kong to convert Hong Kong dollars in their clearing accounts into US dollars at the fixed exchange rate of HK$7.75 to US$1.

[4] Starting from 1 April 1999, the convertibility rate in respect of the Aggregate Balance moved from 7.75 by 1 pip (i.e. $0.0001) per calendar day.

It converged with the convertibility rate applicable to the issuance and redemption of Certificates of Indebtedness at 7.80 on 12 August 2000.