Why Doesn't Hong Kong Use the Pound or the Renminbi?

If you’ve ever traveled to Hong Kong, you know that the currency in use in the territory is the Hong Kong dollar. This may come as a surprise since Hong Kong is a Chinese region and a former British colony. As such, wouldn’t it make more sense for Hong Kong to use the pound or the renminbi? More confusing still, the Hong Kong dollar is pegged neither to the British pound nor to the Chinese renminbi, but to the US dollar.

When the British government tried to impose the gold-based British pound in Hong Kong in 1863, it was rejected. Local merchants and regional trading partners preferred the silver dollar, which was widely used across Asia. The government eventually adopted the silver dollar as Hong Kong’s currency.

In 1935, the government of Hong Kong pegged the Hong Kong dollar to the pound sterling. This lasted until June 1972, when a massive devaluation of the pound inflicted severe losses on Hong Kong’s reserve funds. The Hong Kong dollar was hence pegged to the US dollar between 1972 and 1974, before it became a free-floating currency. It was eventually pegged again to the US dollar on October 17, 1983.

As for the Chinese renminbi, it was not adopted in Hong Kong following the handover, as the difference in economic structures between the mainland and Hong Kong would have led to a collapse of the city’s economic model as an open global financial center.