When the US Dollar Was Illegal in Hong Kong

Ever since October 17, 1983, the Hong Kong dollar has been pegged to the US dollar at a rate of US$1 to approximately HK$7.8 (technically bounded within a narrow convertibility zone of HK$7.75 to HK$7.85). Yet, it might come as a surprise that, for 18 years, the US dollar was illegal in Hong Kong.

Following the end of the Second World War, the United Kingdom was strapped for cash. In an attempt to prop up the British pound sterling, the British government forced its colonies into the Sterling Area. As such, trading or holding other currencies without explicit permission from London was made illegal. This was especially true for the booming, post-war US dollar.

However, this restriction put Hong Kong in a particularly difficult position. Hong Kong’s booming manufacturing and export sectors desperately needed US dollars to buy raw materials and trade globally. As a result, the government of Hong Kong operated a dual system. Although it officially remained in the Sterling Area, the colonial government also tolerated—and even protected—a massive local US dollar black market to ensure the survival of the local economy.

Eventually, this technical illegality came to an end in November 1967, when the pound sterling was suddenly devalued by 14.3%. This devaluation severely harmed Hong Kong's sterling-denominated reserves and shattered Hong Kong’s trust in the pound Sterling, forcing Hong Kong to move away from the British currency entirely.