The Hong Kong Monetary Authority (HKMA) is the government authority that performs central banking functions in Hong Kong. Its main job is to keep the Hong Kong dollar stable against the US dollar. It also supervises banks and certain payment and stablecoin businesses, oversees the city's payment systems and manages the Exchange Fund, Hong Kong's official reserves.
The HKMA was formed on 1 April 1993 by merging the Office of the Exchange Fund and the Office of the Commissioner of Banking. Unlike most central banks, it does not print notes itself: three commercial banks issue them, backed by US dollars deposited with the Exchange Fund. It operates under the Exchange Fund Ordinance and the Banking Ordinance and reports to the Financial Secretary of the Hong Kong Special Administrative Region.
HKMA in plain terms
Imagine a money-changer who stands at the border and promises to swap Hong Kong dollars for US dollars at almost the same price every day, in either direction, for anyone. To make that promise believable, the money-changer keeps a huge safe full of US dollars. That is the heart of what the HKMA does.
Because the price never moves much, families and businesses can plan without worrying about the exchange rate. The trade-off is that Hong Kong's interest rates tend to follow those set in Washington, whether or not that suits local conditions. Alongside this role, the HKMA acts as the referee for banks, checking that they are safe and well run.
History
The Exchange Fund dates from the Currency Ordinance of 1935, which created it to back the issue of banknotes. After a sharp fall in the currency in 1983, Hong Kong introduced the Linked Exchange Rate System on 17 October 1983, fixing the rate at HK$7.80 to the US dollar. The HKMA took over the running of that system when it was formed in 1993, with Joseph Yam as its first Chief Executive.
During the Asian crisis, speculators attacked both the currency and the stock market. In August 1998 the government used the Exchange Fund to buy about HK$118 billion of Hong Kong shares to defeat the attack, a rare intervention later sold back to the market. Eddie Yue became Chief Executive in October 2019.
Functions
The HKMA describes four main policy objectives:
- Currency stability. Since May 2005 it has guaranteed to buy or sell Hong Kong dollars at 7.75 and 7.85 per US dollar, the edges of the allowed band.
- Banking stability. It licenses and supervises banks under the Banking Ordinance, applying Basel III capital and liquidity standards and acting as lender of last resort.
- Financial infrastructure. It oversees the Hong Kong dollar real-time gross settlement system and the Faster Payment System, a real-time payment system launched in September 2018.
- Reserves management. It invests the Exchange Fund, which holds the city's foreign exchange reserves.
It also helps develop Hong Kong as an international financial centre, including the offshore renminbi market.
How the currency link works
The link is a currency board: the monetary base is fully backed by US dollar assets. When money flows into Hong Kong and the rate reaches 7.75, the HKMA sells Hong Kong dollars and buys US dollars, so liquidity expands. When money flows out and the rate reaches 7.85, it buys Hong Kong dollars back, so the banking system's balance shrinks and local interest rates rise until the outflow slows.
This is a textbook case of the impossible trinity. With full capital mobility and a fixed rate, Hong Kong gives up monetary policy independence; its base rate is set by a formula tied to the US federal funds rate.
Supervision of payments and stablecoins
The HKMA licenses stored value facility operators, such as e-wallet providers, under the Payment Systems and Stored Value Facilities Ordinance. The Stablecoins Ordinance, which took effect on 1 August 2025, requires anyone issuing a fiat-referenced stablecoin in Hong Kong, or a Hong Kong dollar stablecoin elsewhere, to hold an HKMA licence. The authority also enforces anti-money laundering rules for the institutions it supervises.
Governance and criticism
The Financial Secretary controls the Exchange Fund and appoints the HKMA's Chief Executive. The Exchange Fund Advisory Committee, chaired by the Financial Secretary, advises on the fund and on the authority's work, and its Currency Board Sub-Committee publishes records of its discussions on the link. HKMA staff are employed outside the civil service, a choice meant to attract specialists from the market.
The main criticism is aimed at the currency link rather than the institution. Because Hong Kong imports US interest rates, very low rates in the 2010s were blamed for feeding property prices, while US rate rises in 2022 and 2023 pushed up local borrowing costs as the HKMA bought Hong Kong dollars repeatedly at 7.85. The system has held through both directions of pressure: in May 2025 the strong side at 7.75 was triggered for the first time since 2020, and the HKMA sold about HK$129 billion to cap the currency.