Historical Sketch

During the First Opium War, Great Britain forced the Chinese Empire to cede the island of Hong Kong. In 1898, the colony was extended by the "New Territories" on the mainland, for which Great Britain obtained a 99-year lease. During World War II, Japan expelled the British from Hong Kong in 1941 and held it until the military defeat in August 1945. As the expiration of lease of the New Territories was approaching, China and Great Britain agreed in 1984 that at the same time also the colony would be ceded back to China. In return, Hong Kong's economic and political systems were to be kept unchanged for 50 years after the transfer. Since June 1997, Hong Kong (including the former New Territories) constitutes a Special Administrative Region of China.

Monetary History Overview

In 1842, Great Britain declared the Mexican Peso in silver the unit of account. Two years later, this was reverted into British accounting with the Peso valued at 50 Pence Sterling. Beside the Peso trade coins also British Indian silver and the Chinese copper Cash were accepted in payment. Since the Pound Sterling as gold currency was not suited for trade with the Chinese mainland, where the economy was deeply rooted in silver, accounting switched back to the Mexican Peso in 1863. A currency law was passed introducing the Hong Kong Dollar equal to the silver Peso. Subsidiary coins in silver and copper were issued in the following year, full-valued dollars and half-dollars followed in 1866 but could not displace the foreign silver coins. In the 1860s, several private commercial banks began issuing paper money. A first regulation of the issuance was passed with the bank note issue ordinance of 1895. In 1935, the Hong Kong Dollar switched to the gold standard, at the same time as the currency of mainland China. A currency board system was installed when the Hong Kong Exchange Fund began operations, but paper money issuance remained entirely in private hands. In December 1941, Japanese conquered Hong Kong, and the military command immediately introduced the Japanese military currency. Initially, ordinary Japanese banknotes were overprinted "military voucher" to be marked as Japanese Military Yen. In 1943, two Japanese commercial banks were mandated to issue a distinct series of military payment certificates with no indication that were meant for Hong Kong. The pre-war currency notes remained in circulation, and the occupying forces even distributed unissued paper money by from the holdings of the closed commercial banks, called "duress notes" by the population. The Dollar was devalued by more than 50% initially, then by another 50% in August 1942, and finally abolished in May 1943. After that, its possession was even punishable by law. After the Japanese defeat, the British administration restored the pre-war monetary system. The occupation currency was declared worthless without compensation. The Sterling peg of the Hong Kong Dollar was restored and remained unchanged during the 1949 devaluation. When Britain devalued its currency again in 1967, Hong Kong first followed but revoked the decision within four days on pressure by the local economy, such that the Dollar appreciated against the Pound Sterling. When Great Britain floated its currency in June 1972, Hong Kong repegged to the US Dollar. In 1974 finally, also the Hong Kong Dollar got floated and lost about one third of its value until it repegged to the US currency (with small fluchtuation band) in 1983. This has remained unchanged since then and was not changed either when Hong Kong returned to China in July 1997 and became a Special Administrative Region of the People's Republic. Paper money is issued by the commercial banks HSBC, Standard Chartered and Bank of China (Hong Kong), under supervision by the Hong Kong Monetary Authority, which had succeeded the Exchange Fund in 1992.

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