As the Hong Kong dollar sinks to a one-year-low of 7.77 per U.S. dollar, the Hong Kong Monetary Authority reassures that the slump is merely temporary. The local currency will turnaround as upcoming large stock offerings are set to attract capital inflow and positive demand for the dollar, said Chief Executive Eddie Yue.

That said, Yue warned in an interview last week that an end to the low-interest environment and an unexpected inflation surprise are two major tail risks that may lead to capital flight. Similar to the taper tantrum caused by the Federal Reserve’s decision to scale back quantitative easing in 2013, there can be a rapid outflow of capital from emerging markets in Asia, including Hong Kong.

In April 2018, amid a capital outflow, the HKMA triggered the weak-side convertibility undertaking by selling U.S. dollars after the local currency fell to 7.85 per U.S. dollar. From April 2019 till early this year, the HKMA has purchased US$49.4 billion in 85 interventions.

Yue stressed that as long as the local currency is fluctuating within the linked exchange rate, “we don’t mind whether it is strong or weak.” As Hong Kong’s de facto central bank, the institution has different contingency plans, and even if the tail risk does occur, under the arbitrage mechanism of the currency board and an aggregate balance of near HK$400 billion (US$51.52 billion), the HKMA “has plenty in its arsenal” to purchase Hong Kong dollars from the market, he added.

Yue reiterated that the city’s linked exchange rate system will remain the same before 2047.

The CEO attributed the recent weakness in the local currency to fundraisers selling Hong Kong dollars after public offerings, the wider economic downturn and investors’ short selling amid exchange rate movements. But an upcoming string of initial public offerings will have a positive impact and the blip is merely temporary, he added.

The HKMA is also working with the People’s Bank of China on cross-border payment with the national digital currency eCNY. The first phase of the test has been conducted smoothly and the institutions are working on the second phase, which includes enabling transfer to digital wallets through the Faster Payment System.

Yue admitted the national security law imposed by Beijing last summer was the second biggest concern of international organizations, after the mass protests in 2019. Many companies are worried that analysts making negative predictions of the Chinese economy or employees sending data to headquarters abroad could constitute a violation. “These are the first questions we get” at conferences, he said.

But the city’s top finance regulator has maintained communication with international firms and reassured them of Hong Kong’s status as a global financial hub. “Time is the best proof,” he said. “And the examples they worried about the most did not happen.”

“To international investors, there isn’t any change to Hong Kong’s judiciary and the common law legal system. Judicial independence is upheld,” he stressed.

One of the most memorable incidents since he took up the top post in October 2019 was the rumors about a bank run. “Hong Kong was relatively chaotic back then, I never saw rumors spread so quickly.” He noted the importance of developing a social media strategy and leveraging the power of the internet to clarify rumors and restore public confidence in the institution.

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