New Seven Ways to Reduce Speculative Pressure on Hong Kong’s Linked
Exchange Rate System

LIE Chun Pong

doi:10.46609/IJSSER.2026.v11i06.027

Title: New Seven Ways to Reduce Speculative Pressure on Hong Kong’s Linked Exchange Rate System
Authors: LIE Chun Pong
Journal: International Journal of Social Science and Economic Research (IJSSER) ISSN: 2455-8834 Volume: 11 Issue: 6 Publication Date: June 2026 DOI: 10.46609/IJSSER.2026.v11i06.027
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LIE Chun Pong Hong Kong University of Science and Technology
MLA 8 Pong, LIE Chun. "New Seven Ways to Reduce Speculative Pressure on Hong Kong’s Linked Exchange Rate System." Int. j. of Social Science and Economic Research, vol. 11, no. 6, June 2026, pp. 2838-2844, doi.org/10.46609/IJSSER.2026.v11i06.027. Accessed June 2026. APA 6 Pong, L. (2026, June). New Seven Ways to Reduce Speculative Pressure on Hong Kong’s Linked Exchange Rate System. Int. j. of Social Science and Economic Research, 11(6), 2838-2844. Retrieved from https://doi.org/10.46609/IJSSER.2026.v11i06.027 Chicago Pong, LIE Chun. "New Seven Ways to Reduce Speculative Pressure on Hong Kong’s Linked Exchange Rate System." Int. j. of Social Science and Economic Research 11, no. 6 (June 2026), 2838-2844. Accessed June, 2026. https://doi.org/10.46609/IJSSER.2026.v11i06.027.
References [1] . Bank for International Settlements. (2019). Triennial Central Bank Survey: Foreign exchange turnover in April 2019. https://www.bis.org/statistics/rpfx19_fx.pdf [2] . Hong Kong Monetary Authority. (2020, April 28). Base rate. https://www.hkma.gov.hk/eng/key-functions/money/liquidity-facility-framework/base-rate/ [3] . Hong Kong Monetary Authority. (2024, June 26). Linked Exchange Rate System. https://www.hkma.gov.hk/eng/key-functions/money/linked-exchange-rate-system/ [4] . Hong Kong Monetary Authority. (2025, January 9). Reaffirming our stance on the Linked Exchange Rate System. https://www.hkma.gov.hk/eng/news-and-media/insight/2025/01/20250109/ [5] . Hong Kong Monetary Authority. (2025, May 7). HKMA's response to US Fed's interest rate decision. https://www.hkma.gov.hk/eng/news-and-media/press-releases/2025/05/20250508-3/ [6] . Hong Kong Monetary Authority. (2025, June 25). HKMA's response to media enquiries. https://www.hkma.gov.hk/eng/news-and-media/press-releases/2025/06/20250626-4/ [7] . Hong Kong Monetary Authority. (2025, October 21). How does the LERS work? https://www.hkma.gov.hk/eng/key-functions/money/linked-exchange-rate-system/how-does-the-lers-work/ [8] . The Government of the Hong Kong Special Administrative Region. (2019, November 6). LCQ13: Linked Exchange Rate System. https://www.info.gov.hk/gia/general/201911/06/P2019110600252.htm [9] . Ritchie, D. (2020). Online Transactions Can’t Eliminate Cash. Global Finance, 34(7), 56. [10] . Villena, J.M., & Hynes, A. The Chilean Foreign Exchange Market: An International Comparison, 1998-2019. RePEc: Research Papers in Economics.
ABSTRACT: Hong Kong’s Linked Exchange Rate System (LERS) remains one of the most durable currency board arrangements in the international monetary system. Introduced in October 1983, the regime anchors the Hong Kong dollar within a convertibility zone of HK$7.75 to HK$7.85 per US dollar through a rules-based and fully backed monetary framework [1][3]. In 2025, renewed capital inflows pushed the Hong Kong dollar to the strong-side Convertibility Undertaking, prompting the Hong Kong Monetary Authority (HKMA) to sell Hong Kong dollars and expand the Aggregate Balance in accordance with the design of the system [5][7]. These developments revived debate over whether speculative flows, particularly short-horizon capital movements associated with hedge funds and other financial institutions, could amplify asset-price volatility and complicate macro-financial management in a highly open economy without capital controls [1][2][3]. This research paper argues that the central vulnerability of the LERS is not the absence of a formal defense mechanism, because the system already contains explicit strong-side and weak-side convertibility commitments, but rather the possibility that volatile cross-border capital flows could interact with interest-rate adjustments, leverage, and asset-market sentiment in destabilizing ways [1][2][3][4]. Building on this argument, the paper proposes seven policy directions: strengthening operational transparency, improving surveillance of concentrated positions, recalibrating market-based prudential tools, reinforcing fiscal credibility, refining liquidity-management incentives, deepening two-way stabilizing arbitrage, and developing contingency planning for longer-run monetary evolution. These proposals are designed not to replace the LERS, but to enhance its resilience, credibility, and deterrent capacity under conditions of recurrent global financial volatility [1-8].

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