Why the Hong Kong Dollar is Pegged to the US Dollar

In September 1982, former British Prime Minister Margaret Thatcher visited Beijing to pave the way for formal negotiations on Hong Kong's future.

Diplomatic talks began in July 1983, but they did not get off to a good start. Britain maintained that the people of Hong Kong wanted British administration to continue after 1997, whereas China held that Hong Kong must be returned to China.

According to C.K. Lau in his book Hong Kong's Colonial Legacy - A Hong Kong Chinese's View of the British Heritage (The Chinese University Press, 1997), as the stalemate dragged on, China's official media launched an attack against the British stance.

Lau wrote: "The lack of progress caused a collapse of confidence in the territory, and sparked off a currency crisis in which the Hong Kong dollar lost more than 20 per cent of its value between 16 and 24 September 1983."

The crisis was averted only after the Hong Kong government announced that the Hong Kong dollar would be pegged to the US dollar (US$1 = HK$7.80).