Hong Kong Monetary Authority (HKMA)

Overview

The Hong Kong Monetary Authority (HKMA), founded in 1993, serves as the de facto central bank of the Hong Kong Special Administrative Region. It oversees monetary stability, the banking system’s integrity, and Hong Kong’s position as a global financial center. The HKMA also manages the Exchange Fund, Hong Kong’s sovereign fund used to support monetary and financial stability.

Core Functions

• Maintain the stability of the Hong Kong dollar (HKD) through the Linked Exchange Rate System.
• Preserve the stability and integrity of Hong Kong’s banking and financial systems.
• Promote Hong Kong’s reputation and operations as an international financial center.
• Manage the Exchange Fund to safeguard monetary stability and financial security.

The Exchange Fund and Its Portfolios

The Exchange Fund is structured to support the monetary base, preserve capital, and seek long-term returns while controlling investment risk. Its main portfolios include:

• Backing Portfolio — Invests in high-quality, liquid U.S. dollar securities to support the monetary base and defend the HKD peg.
• Investment Portfolio — Allocates across bonds and equities for capital preservation and appreciation.
• Long-Term Growth Portfolio — Targets private equity and real estate to diversify risk and enhance returns.
• Strategic Portfolio — Holds specific strategic equity positions, notably shares in Hong Kong Exchanges and Clearing Limited.

Linked Exchange Rate System and Currency Stability

The HKMA operates the Linked Exchange Rate System, which pegs the HKD to the U.S. dollar within a narrowly defined band. Under this system:
* HKD note-issuing banks may issue notes only after depositing equivalent U.S. dollar value with the HKMA.
* The HKMA intervenes by buying or selling HKD to maintain parity against the USD.
* Management of the Exchange Fund supports these interventions and broader currency stability.

Monetary Policy and Interest Rates

The HKMA’s monetary policy aims to control inflation and ensure banking-sector soundness. Its policy stance typically aligns closely with U.S. monetary policy to preserve the HKD peg. For example, in 2025 the HKMA maintained a key policy rate at 4.75%, reflecting caution about inflationary risks and the need to keep monetary conditions consistent with the Federal Reserve.

Regional Cooperation

The HKMA is a member of the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP), a forum for regional central banks and monetary authorities to cooperate on financial stability and policy coordination.

Key Takeaways

• The HKMA acts as Hong Kong’s central banking authority, managing currency stability, banking-system integrity, and the Exchange Fund.
• The Exchange Fund is divided into portfolios tailored to support the monetary base, preserve capital, and pursue long-term growth.
• The Linked Exchange Rate System pegs the HKD to the USD, requiring the HKMA to intervene in currency markets and align monetary policy with the U.S. where appropriate.
• The HKMA participates in regional central banking cooperation through EMEAP.