Hong Kong Dollar – Same Dollar, Different Banks, Understand the Unique Story
In Hong Kong, instead of the usual central bank controlling and issuing legal banknotes, four different banks are currently issuing the Hong Kong dollars. The Hong Kong Dollar (HKD) is the official currency of Hong Kong. The Hong Kong Monetary Authority (HKMA) governs the, and it is also the central bank for Hong Kong and issues banknotes for Hong Kong.
Not Only the Central Bank
However, in Hong Kong, other banks are licensed to issue their bank notes for general circulation in the country. Under the Hong Kong Monetary Authority, three commercial banks: Hong Kong and Shanghai Banking Corporation (HSBC), Bank of China and Standard Chartered are licensed to issue HK$20, HK$50, HK$100, HK$500 and HK$1000 banknotes. All the designs are similar to one another in the same banknote denomination. The Hong Kong Monetary Authority issues bank notes in denomination of HK$10 and all coins for currency circulation in Hong Kong.
This arrangement is not the only one in the world as the United Kingdom also practices multiple banks issuing banknotes denomination.
Hong Kong Dollar in History
The first official Hong Kong dollars issued was in the 1860s, and it was issued by Oriental Bank Corporation, Chartered Bank of India, Australia & China and Hong Kong and Shanghai Banking Corporation (HSBC) in denominations of 1,5,10,25,50,100 and 500 dollars. In 1935, the Hong Kong government took over issuing of 1-dollar notes while authorised local banks are entrusted with issuing 5-dollar banknotes and above. There was even a period where the Hong Kong Government issues notes for 1, 5, and 10 cents because the ship carrying 1-cent coins was sunk during the Second World War. Then in 1975, 5-dollar notes are replaced with a coin, and 1000-dollar bills were introduced. In 1993, the 10-dollar coin was launched, yet due to public demand, the HKMA re-issued banknotes of HK$10, and it is the only banknote denomination the HKMA is currently issuing.
Hong Kong Dollar Circulation
The Hong Kong dollar is currently being used by anyone trading in Hong Kong. It is also accepted in neighbouring Macau as well as China, although the amount of circulation is not documented.
Backed by the US Dollar
Only banks with the equivalent exchange in US dollars on deposit can issue the Hong Kong Dollar. This is because the Hong Kong dollar is pegged to the US dollar at USD 1 to HK$ 7.80. The country’s monetary base is backed with the US dollar at the linked exchange rate. This unique linked exchange rate means that if the exchange market drops below the value of HK$7.80, then the banks will convert US dollars into Hong Kong dollars for it to climb back to the fixed rate. The same applies if the market is above 7.80, Hong Kong dollars will be converted into US dollars to stabilise the market.
There are many unique traits to the Hong Kong dollar; from its matter of banknote denomination issuance to its banknote history to its linked exchange rate.