Last week was an eventful one as far as the Hong Kong dollar being pegged to the United States dollar is concerned. The Hong Kong Monetary Authority (HKMA) said on Tuesday that it bought HK$60.5 billion ($7.8 billion) against the Hong Kong dollar from the market to stop the local currency from strengthening and breaking the peg. This was the fourth time this month that the Hong Kong dollar hit the top end of its band.

Since 1983, the Hong Kong dollar has been pegged to the US dollar in a narrow band. The dollar peg — officially known as the Linked Exchange Rate System (LERS) — affixes the Hong Kong dollar to the greenback at HK$7.80 per US dollar within a bandwidth of HK$7.75 to HK$7.85. However, calls to rethink the Hong Kong dollar’s peg to the US dollar come around every few years, normally during periods of financial stress or geopolitical tension, as is the case now with the ongoing trade war started by US President Donald Trump.

It is not the right time for the Hong Kong Special Administrative Region to abandon its historical link to the greenback. Over the years, the city’s monetary authorities have stood firm and maintained the peg, and they are wise to do so as global financial uncertainty unfolds.

The aggregate balance, the key gauge of cash in the banking system, will increase by HK$116.6 billion on May 7, a HKMA spokesperson said on Tuesday.

As a matter of fact, the HKMA’s action aligns with the established procedures of the LERS, underscoring the authority’s longstanding commitment to this system. The LERS mechanics’ dictate that the HKMA’s liquidity injection should lead to an increase in the aggregate balance, or the supply of Hong Kong dollar liquidity.

Eddie Yue Wai-man, chief executive of the HKMA, has reportedly made a strong case for the peg, stating the system had served Hong Kong well over the last four decades. His statement, intended to dispel recent rumors of a possible policy change, highlights a key fact: The peg is a cornerstone of Hong Kong’s financial stability. Altering it without a better alternative could risk eroding confidence at a moment when certainty is most required.

For an externally oriented, financially open economy such as Hong Kong’s — where finance is a leading pillar — currency stability is not just a technical issue; it’s a matter of survival.

The recent surge in US interest rates has revived debates on whether the peg is still appropriate, with Hong Kong’s property market weakening and borrowing costs rising. But these are cyclical strains, not structural frailties in the system.

The peg has been a fixed marker of Hong Kong’s commitment to the rule of law and financial openness. ... Taking away the peg too soon would ruin that confidence without securing corresponding benefits

The peg has been a fixed marker of Hong Kong’s commitment to the rule of law and financial openness.

Indeed, the peg acts as a steadfast interface for international investors, reassuring global fund managers, multinational companies, and family offices that Hong Kong remains a safe, trustworthy place in which to conduct business.

Taking away the peg too soon would ruin that confidence without securing corresponding benefits.

Of course, in the longer term, Hong Kong must remain open to monetary innovation. As pilot programs with China’s digital yuan expand, and as demand for central bank digital currencies grows globally, there may be opportunities to rethink the architecture of the HKSAR’s currency system. A future in which Hong Kong is a clearing center for digital currencies, a cross-border settlement center, or even a two-currency system is not out of the question. It will require incremental, carefully calibrated reforms.

It is true that, if China is forced to trade more with the Global South, it may increase the use of renminbi in international transactions, further challenging the dominance of the US dollar. This could accelerate the de-dollarization movement among developing nations, which have already begun exploring alternative financial systems, and the Global South’s expansion can create the potential for using currencies other than the US dollar, for example, via a central bank digital currency.

And it is also true that, regarding Hong Kong’s role in the digital yuan, the SAR can play a key role in renminbi internationalization, given its competitive advantages as the world’s largest offshore renminbi center.

However, in the meantime, the peg continues to serve Hong Kong well. It pins down expectations, supports the city’s status as an international financial center, and signals institutional stability in a world of geopolitical instability. It is true that critics may complain about short-term costs — higher interest rates, less flexibility — but more desirable are the long-term dividends of credibility, stability, and world integration.

The HKMA’s robust defense of the peg is not a technocratic stance; it’s a reaffirmation of Hong Kong’s position as a rules-based, internationally connected economy. In a time of rising economic fragmentation and currency rivalries, that clarity is capital Hong Kong cannot afford to lose.

To sum up, I think now is not the right time to unpeg the HK dollar from the US dollar, because the HKMA still has the capacity to defend the LERS — as we are witnessing this week — and there is a clear political will to defend the exchange rate.

Given that renminbi is not fully convertible yet, unpegging the Hong Kong dollar from the US dollar would be too risky.

We cannot allow ourselves to be panicked by the trade war and new tariffs. The trade war will eventually end, but the peg should remain since, at the end of the day, Hong Kong is one of the world’s most important financial centers and is embracing opportunities from growth in the Guangdong-Hong Kong-Macao Greater Bay Area by playing a proactive part in the nation’s 14th Five-Year Plan (2021-25). It is also unleashing its potential thanks to unreserved support from the central authorities for advancing key strategies to upgrade its superconnector role, including the digital yuan or digital renminbi and environmental, social and governance.

The author is a fintech adviser, researcher, and former business analyst for a Hong Kong listed company.

The views do not necessarily reflect those of China Daily.