Top advisors to President Donald Trump are reportedly pushing for moves to undermine the Hong Kong dollar’s peg to the greenback but others fear there would be limited damage to the intended target.
Top advisors in the White House are considering moves against the peg, according to a «Bloomberg» report (behind paywall) citing unnamed sources, in order to punish China for the implementation of the national security law in Hong Kong.
Potential moves considered include restrictions against Hong Kong banks to buy U.S. dollars but discussions have been limited amongst advisors to Secretary of State Mike Pompeo and have yet to be elevated to more senior levels in the White House suggesting the idea «that it hasn’t gained serious traction yet,» the report added.
Bank Attack
According to two other unnamed sources, the administration’s top priority is to find ways to punish banks based in Hong Kong, especially HSBC which has been the sector's most public supporter of the national security law. In light of this, there has been strong internal opposition at the White House against attacking the peg as it is seen to only hurt Hong Kong banks and the U.S. rather China, the intended target.
Meanwhile, there is already a bill awaiting Trump’s approval – the «Hong Kong Autonomy Act» – after passing through the Senate and the House which would enable the U.S. government to sanction individuals and entities enforcing legislation alongside banks conducting «significant transactions» with them.
Countermoves
Senior officials in Hong Kong have already anticipated the possibility that the peg could face external challenges. Financial secretary of Hong Kong Paul Chan has reassured the public that the peg is backed by a hefty amount of reserves and also said that a U.S. dollar currency swap line with the People’s Bank of China was at its disposal if needed.
Attacking the peg is low on the list of options under discussion for now, the report added, with other higher priority options on the table such as the cancellation of a U.S.-Hong Kong extradition treaty and the end to cooperation with Hong Kong’s police force which has been widely accused of numerous human rights violations.
