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The same mechanism also works when the market rate is above 7.80, and the banks will convert Hong Kong dollars for US dollars. The Hong Kong dollar is backed by one of the world's largest foreign exchange reserves, which is over 7 times the amount of money supplied in circulation or about 48% of Hong Kong dollars M3 at the end of April 2016. [3]
De Facto Classification of Exchange Rate Arrangements, as of April 30, 2021, and Monetary Policy Frameworks [2] Exchange rate arrangement (Number of countries) Exchange rate anchor Monetary aggregate target (25) Inflation Targeting framework (45) Others (43) US Dollar (37) Euro (28) Composite (8) Other (9) No separate legal tender (16) Ecuador ...
Hong Kong uses a linked exchange rate system, trading since May 2005 in the range US$1:HK$7.75–7.85. Apart from its use in Hong Kong, the Hong Kong dollar is also used in neighbouring Macau. It is pegged at 1 Hong Kong dollar to 1.03 Macanese patacas, and is generally accepted at par or MOP 1.00 for retail purchases. [5]
The economy of Hong Kong is a highly developed free-market economy. It is characterised by low taxation, almost free port trade and a well-established international financial market. [15] [16] Its currency, called the Hong Kong dollar, is legally issued by three major international commercial banks, [17] and is pegged to the US dollar.
It is included the Linked Exchange Rate System and noticeable features such as the Aggregate Balance, Certificates of Indebtedness and coins issued and the Outstanding Exchange Fund Bills and Notes. The Interest Rate Adjustment Mechanism is an automatic system that maintains the stability of the Hong Kong dollar exchange rate.
A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market.The currency that is used as the reference is called the counter currency, quote currency, or currency [1] and the currency that is quoted in relation is called the base currency or transaction currency.
The implied PPP exchange rate is 3.58 HK$ per US$. The difference between this and the actual exchange rate of 7.83 suggests that the Hong Kong dollar is 54.2% undervalued. That is, it is cheaper to convert US dollars into Hong Kong dollars and buy a Big Mac in Hong Kong than it is to buy a Big Mac directly in US dollars. [citation needed]
A jiao (/ dʒ aʊ /; Chinese: 角), or mao (Chinese: 毛) (Cantonese: hou [Chinese: 毫]), is a unit of currency used in China, including the Mainland, Taiwan, Hong Kong and Macao. One jiao is equal to 1 ⁄ 10 of a yuan or 10 fēn (分). The Renminbi has coins of 1, 2 and 5 jiao. [1] The 2 jiao coin is no longer in circulation.