7.8000 is the fixed exchange rate of our linked exchange rate applicable to the issue and redemption of Certificates of Indebtedness backing the bank notes.
7.7500 has been chosen as the rate for the Convertibility Undertaking because it is the current intervention rate of the HKMA which is commonly known in the market. An immediate move to 7.8000 may be misunderstood as a devaluation of the Hong Kong dollar. It is also understood that many corporates have set hedging and stop loss positions at around 7.7500. An immediate move to 7.8000 would trigger these orders and might cause unnecessary outflows.
The HKMA in its statement issued on 5 September has set out clearly the condition for moving the rate of the Convertibility Undertaking back to 7.80. This will be done at a time when the market exchange rate is consistently at a level stronger than 7.7500.
To remove market uncertainties and to allow sufficient time for corporate treasurers to change their hedging and stop loss orders, the HKMA has decided to leave the rate for Convertibility Undertaking at 7.7500 unchanged for at least six months. The HKMA will review the situation after the six-month period to ascertain whether the condition for moving the rate of the Convertibility Undertaking to 7.800, as set out in its statement on 5 September, is met.
Hong Kong Monetary Authority
14 September 1998
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