The Hong Kong dollar

Who puts the notes into circulation

The Hong Kong Monetary Authority has licensed three commercial banks to issue banknotes: The Hongkong and Shanghai Banking Corporation, Bank of China (Hong Kong) and Standard Chartered Bank (Hong Kong). Each prints its own design of the HK$20, HK$50, HK$100, HK$500 and HK$1,000 notes, and the three designs of any one denomination look alike. A bank issues or redeems notes only against payment to or from the Exchange Fund in US dollars, at HK$7.80 to the US dollar.

The government, through the HKMA, issues the rest. Its HK$10 note has been printed on paper since 2002 and on polymer since 2007, and coins of 10, 20 and 50 cents and of one, two, five and ten dollars come from the HKMA on the government's behalf as well. Every note is printed in Tai Po, at a plant the HKMA bought from the De La Rue Group in April 1996 and now runs as Hong Kong Note Printing Limited.

How the link to the US dollar holds

The HKMA describes its Linked Exchange Rate System as a currency board. The whole monetary base is backed by US dollar assets held in the Exchange Fund, and any change in the base is matched by a change in those assets at the fixed rate.

Since 2005 the HKMA has promised banks two limits. At HK$7.75 to the US dollar it sells Hong Kong dollars on request, and at HK$7.85 it buys them. When the rate touches either side, the balance banks hold at the HKMA grows or shrinks, and interest rates move until the rate drifts back inside the band. The Basic Law and the Sino-British Joint Declaration leave the issue of currency to Hong Kong itself.

What the territory spent before the peg

When Hong Kong became a free trading port in 1841 it had no currency of its own. Indian rupees, Spanish and Mexican eight-real pieces and Chinese cash coins changed hands instead. The Royal Mint in London began striking subsidiary coins for Hong Kong in 1863, inside the silver dollar system. A local mint at Causeway Bay opened in 1866 and closed two years later, at a loss.

Hong Kong left silver in 1935. The One-Dollar Currency Note Ordinance of that year brought in government one-dollar notes, and the government recognised the Hong Kong dollar as the local unit. The currency was fixed at HK$16 to the pound in 1939, pegged to the US dollar in 1972 and left to float from 1974. On 24 September 1983, during the Sino-British talks on Hong Kong's future, it fell to HK$9.60 to the US dollar. The link followed three weeks later.

Why Macau takes Hong Kong money

Macau has a currency of its own, the pataca, and that is its legal tender. It pegs the pataca to the Hong Kong dollar at a fixed rate. Hong Kong notes and coins circulate there beside it, and shops generally accept them one for one with the pataca.

How the Queen left the coins

From 1993, ahead of the handover, coins carrying the portrait of Queen Elizabeth II were gradually withdrawn. The bauhinia flower replaced her. The HKMA's chief executive of the day chose it himself as a politically neutral design. The older coins remain legal tender. They are being phased out slowly. In Cantonese ten cents is one hou, and the character for a single cent now appears mostly in share prices.