What Is the Hong Kong Monetary Authority (HKMA)?
Let me explain the Hong Kong Monetary Authority (HKMA) directly to you. Founded in 1993, it's an independent entity with four main functions: maintaining the stability of the Hong Kong dollar (HKD) under the Linked Exchange Rate System, ensuring the stability and integrity of Hong Kong's banking and financial systems, promoting Hong Kong's status as a global financial center, and managing the country's Exchange Fund.
As the de facto central bank, the HKMA controls inflation and keeps the banking sector sound through its monetary policy. It pegs the HKD to the United States dollar to maintain a stable value for the currency.
Key Takeaways
You should note that the HKMA was established in 1993, just before the 1997 handover of Hong Kong from British rule to the People's Republic of China. It makes monetary policy decisions to control inflation, maintain banking system stability, and secure the national currency.
The Exchange Fund acts as Hong Kong's sovereign fund, managed for monetary system stability, financial security via capital preservation and growth, and control of investment risk. As of June 2025, the HKMA kept its benchmark interest rate at 4.75%.
Understanding the HKMA
Hong Kong stands as a major international finance capital and a prime location for multinational company offices. As a Special Administrative Region of the People's Republic of China, it's an autonomous territory with its own currency and a nominal GDP exceeding $407 billion in 2024. The HKMA operates as the region's central bank.
Among its duties, the HKMA manages the Exchange Fund, which is the sovereign wealth fund. This fund has key portfolios: the Backing Portfolio invests in high-quality, liquid U.S. securities to support the monetary base; the Investment Portfolio focuses on bonds and equities for capital preservation and appreciation.
There's also the Long-Term Growth Portfolio, which invests in private equity and real estate for risk diversification and better returns. Finally, the Strategic Portfolio holds shares in Hong Kong Exchanges and Clearing Limited for strategic reasons.
HKMA's Regional Involvement
- The HKMA is part of the Executives' Meeting of East Asia-Pacific Central Banks, which fosters cooperation among regional economies. Its other members include: Reserve Bank of Australia, People's Bank of China, Bank of Japan, Bank of Indonesia, Bank of Korea, Bank Negara Malaysia, Reserve Bank of New Zealand, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore, Bank of Thailand.
HKMA's Currency Stability Role
One of the HKMA's core roles is maintaining currency stability through the Linked Exchange Rate System, which stabilizes the exchange rate between the HKD and the USD. This fixed-rate system keeps parity with the USD in a narrow range, requiring HKD note-issuing banks to deposit equivalent U.S. dollars with the authority before issuing new banknotes.
The HKMA buys HKD to uphold parity within the range and manages the Exchange Fund to influence the currency's value overall.
Interest Rates
In June 2025, the HKMA maintained its key interest rate at 4.75%, aligning with the U.S. Federal Reserve's range of 4.25% to 4.5%. Both institutions are cautious about inflation risks stemming from uncertainties in the second Trump administration's tariff policies.
Other articles for you
Menu costs are the expenses businesses face when changing prices, leading to price stickiness in the economy.
A profit center is a company division responsible for generating its own revenues and profits, treated as a separate entity for financial analysis.
Par value represents the face value of bonds or stocks at issuance, defining maturity amounts and coupon payments for bonds while often being nominal for stocks unrelated to market prices.
Imputed interest is the IRS's way of taxing loans with no or below-market interest rates as if they had a standard rate.
The Loan Life Coverage Ratio (LLCR) evaluates a company's long-term ability to repay loans by comparing discounted cash flows to outstanding debt.
The Power-Distance Index (PDI) measures how cultures accept and distribute power and wealth hierarchies.
The Greenspan Put refers to Alan Greenspan's Federal Reserve policies that acted as insurance against major stock market drops, similar to a put option.
Short covering is the process of buying back borrowed shares to close a short position, which can lead to short squeezes and significant market impacts as seen in the GameStop case.
iShares is a leading ETF provider owned by BlackRock, offering over 800 products with more than $2 trillion in assets across various markets and strategies.
The economic trilemma explains that countries can only achieve one of three mutually exclusive options in international monetary policy: fixed exchange rates, free capital flow, or autonomous monetary policy.