Not my own idea but Kyle Bass points out 80% of the HKMA's "war chest" currency board reserves have been used maintaining the upper peg. Trumps trade war is putting extra pressure on this peg breaking. Last time we saw a peg break was the SNB Frac's +30% 1500+ pips in 5 minute appreciation. There are only three routes for them they can raise more money in the domestic economy, they can raise HKD interest rates, or they can break the peg back to a free float system like the SNB.
Any thoughts on which of the 3 routes HKMA would take?
NervaTech
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@DaneBrammage, I don't know. 140 billion is a lot to burn through in months... I would doubt they would seek more in the domestic market .. that's an insane amount of money. China needs HK as a proxy to the world at large. I would imagine they increase interest rates but that might prove to be too painful given their running a higher debt to GDP than japan... the over all odds seems like the peg is doomed like most are. Kyle Bass has a more in depth perception of this story.
That peg was the best free ride out there it's too bad. I think the peg will break, I hope not but it looks more likely of the 3 routes.
NervaTech
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@DaneBrammage, btw is your name inspired from Dave Grohl's first band?
DaneBrammage
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@TradeCue, lol, no, but I am a fan of his music. very much agree that the peg will break, just a matter of when