Why holding HKD is the same as holding USD

By Allan Eu ???

I have far fewer concerns about a bank going under in Hong Kong than I do in the US. And in Hong Kong I can move money into gold or any number of currencies.

It's quite easy to open an account in US dollars (USD) in Hong Kong. The downsides of USD are continued expansion of the Federal Reserve's balance sheet coupled with excessive spending of the US government make it an increasingly worthless currency in the long run.

The USD has been viewed as a safe-haven currency in the past. When things get bumpy in financial markets, financial institutions and foreigners tend to hold US dollars.

It's crazy to view the biggest debtor in the history of the world as safe, yet this is due to a few factors: the dollar's free-floating convertibility; the ridiculous size of the US dollar (and bond market) which makes it an easy liquidity; and the US government's guarantee to never default (by simply printing more).

Trillions of dollars move in and out of currencies each day depending on the popular rumor. One day the dollar is surging, the next day it's sinking. The euro and pound are getting beaten around like some third world peso. It's embarrassing; this is supposed to be the pinnacle of finance.

One compromise that is worth considering is the Hong Kong dollar (HKD). Pegged at 7.78 HKD per USD for several decades now; holding HKD is essentially the same as holding USD. There is a very narrow range of volatility, but it's a small rounding error.

If the USD's safe haven sentiment holds, the HKD will be a good place to be as it will appreciate against other currencies as well. However, if the USD slides into a coma, you can surely bet that the Hong Kong/Chinese government will make a one-shot revaluation of the peg; this way you can basically maintain the upside potential of holding US dollars, but limit the downside risk.

Last but not least… look out for the “global financial Ponzi system” Hong Kong.

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