Asian Financial Crisis 2.0
Could the Hong Kong peg get caught in the crossfire of US-China relations?
💬 Reserves were enough to stop the last crisis. They may not be enough to prevent the next one.
The Hong Kong dollar peg, long a pillar of financial stability in Asia, now sits at the intersection of escalating US-China tensions. Drawing on insights from our conversation with the architect of the Hong Kong peg, economist John Greenwood, this article examines both the resilience and potential vulnerability of Hong Kong’s monetary regime. Geopolitical shifts, combined with an economic slowdown in China and across the region, have created significant headwinds for Hong Kong. The question is no longer whether the peg is sound, but whether it will be allowed to stand.
US Secretary of State Marco Rubio and Treasury Secretary Scott Bessent represent a new alignment in American economic statecraft—combining anti-communist hawkishness with hedge fund sophistication. In Beijing, Xi Jinping has determined that his country will be self-sufficient, even if this policy produces unsustainable economic inefficiencies. If hostilities increase, Xi could see the peg as a vector of attack on Fortress China.
In early May 2025, the Hong Kong Monetary Authority (HKMA) intervened in currency markets1 after the Hong Kong dollar surged to the top of its official trading band, driven mainly by inflows from large IPOs. The reaction of the currency board was automatic—but not unremarkable in terms of scale. Some observers wondered if this was a sign of pressure on the peg.
According to economist John Greenwood, widely regarded as the father of the Hong Kong peg, the May interventions were a sign of strength, not weakness. The currency board he designed performed exactly as planned. Underpinning the peg are significant US dollar reserves. During the Asian Financial Crisis in 1997-98, the foreign exchange reserves of many countries in the region were inadequate. But Hong Kong’s total reserves of $92.8 billion, more than seven times the monetary base, provided a strong defense against speculation, and the Hong Kong peg survived while others did not.
Today, Hong Kong’s reserves exceed $400 billion dollars, a fourfold increase from 1997. Greenwood has written that “it is inconceivable that the HKMA could ever find itself with inadequate USD reserves.”2
Breaking the Peg: Past Attempts
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