Concerns Over Hong Kong Capital Outflow... Currency Exchange Booths Crowded

[Asia Economy Beijing=Special Correspondent Park Sun-mi] As the Hong Kong National Security Law (Hong Kong Security Law) was passed by the Chinese National People's Congress, concerns about capital outflow from Hong Kong are growing.

On the 29th, Hong Kong media reported that a currency exchange boom is occurring in Hong Kong as an aftershock of the passage of the Hong Kong Security Law. Rumors that US sanctions could lead to a shortage of dollar liquidity in Hong Kong have spread, and currency exchange offices in Hong Kong are crowded with people trying to convert Hong Kong dollars or yuan into dollars in advance.

The strong psychology to secure dollars in advance instead of Hong Kong dollars or yuan stems from concerns that if the US retaliates by revoking Hong Kong's special status due to the passage of the Hong Kong Security Law, it could lead to an outflow of dollar funds from Hong Kong and a shortage of dollar liquidity.

The Hong Kong Monetary Authority fixes the Hong Kong dollar to the dollar at 7.75 to 7.85 Hong Kong dollars per dollar through the peg system with the US. To maintain a stable dollar peg system, abundant dollar liquidity is necessary, but the possibility of a decrease in foreign exchange reserves due to capital outflow cannot be ruled out.

Hong Kong has been a place where mainland Chinese wealthy individuals' escape cash has concentrated due to its financial market openness different from China. For traders, it served as a stable cash investment destination where they could earn higher interbank market interest rates than in the US.

The increased volatility in the foreign exchange market due to the passage of the Hong Kong Security Law also affects the rise in currency exchange demand.

As the US-China conflict escalates to a new Cold War level due to the passage of the Hong Kong Security Law, the value of the Chinese yuan is rapidly falling. On this day, the People's Bank of China further devalued the yuan by raising the yuan's central parity rate against the dollar. On the night of the 27th, in Hong Kong's offshore market, the yuan-dollar exchange rate surged to 7.1964 yuan, marking the lowest yuan value since the opening of the Hong Kong offshore market in 2010.

The Hong Kong Security Law, passed through a vote at the National People's Congress, is expected to be implemented as early as August through rapid follow-up procedures. Typically, a law passed by the National People's Congress requires at least three deliberations by the Standing Committee of the National People's Congress before coming into effect, but for sensitive and politically burdensome laws like the Hong Kong Security Law, there is a possibility of early enforcement by holding an extraordinary session.

A source told the Hong Kong South China Morning Post (SCMP), "The draft of the Hong Kong Security Law is already in the drawer," and "there is a possibility that the law will be created and implemented by August."

This content was produced with the assistance of AI translation services.