Hong Kong makes first currency intervention since 2020 to control US dollar peg

Hong Kong bought nearly $6 billion worth of US dollars this week to stop its own currency from climbing out of its legal trading range.

The Hong Kong Monetary Authority (HKMA) stepped in after the city’s dollar hit the strong end of its peg, pushing toward 7.75 per dollar, and this was the first time since 2020 they took this specific action.

An official at the HKMA’s New York office reportedly confirmed to Bloomberg that the purchases were real, done by phone, and done fast. The decision was triggered by the drop in the value of the US dollar, which had been dragging the Hong Kong dollar to levels that risked snapping the peg entirely.

The HKMA, acting as the city’s central bank, had previously intervened by selling dollars in 2022 and 2023 when the local currency was getting too weak and about to break below 7.85. This time, they had to flip the strategy. This was real-world emergency management to defend a system that’s been around since the ’80s.

China watches Fannie Mae while shifting away from Treasuries

As the HKMA moved in the markets, Taiwan’s central bank did the same. On the same Friday, Taiwan’s dollar jumped 3% against the greenback — the biggest one-day move since 1988. Their central bank had no choice but to intervene too. Regionally, every monetary authority is now dealing with currency swings, and no one’s sitting still.

Earlier this year, a headline about President Donald Trump’s overhaul of Fannie Mae and Freddie Mac reached the desks of China’s foreign exchange regulators. That got Beijing’s full attention.

Officials at the State Administration of Foreign Exchange (Safe) immediately told their team to look into the investment risks tied to that change.

Both Fannie and Freddie are mortgage companies that turn home loans into investment products. The US government took them over in the 2008 crash, but Trump now wants them out of government hands.

What stood out to the Chinese officials was the idea of mortgage-backed securities that still carry an implied US government guarantee. Safe considered those — and even direct equity stakes in Fannie and Freddie — as possible replacements for US Treasuries.

They weren’t guessing either. People familiar with the agency said the shift was based on protecting China’s massive foreign reserves, which are still deeply tied to US dollar assets.

China’s holdings in US currency are leftovers from the country’s export-heavy growth. Factories pumped out products for the West, cash came back in, and the excess was shoveled into Treasuries to help Washington keep the lights on.

That pile reached $4 trillion in 2014 and hasn’t gone under $3 trillion since 2016. At one point, 60% of China’s reserves were in US dollar assets, with Treasuries making up the bulk. But the flaws in that portfolio started to show fast.

A paper written by Pan Liu and Zhang Weiwan, also from Tsinghua, in 2024, warned that what happened to Russia’s money showed how much control the US holds through its dollar system. They said “the lesson for China is clear.”

Between January 2022 and December 2024, China slashed its US Treasury holdings by 27%, down to $759 billion, a drop way faster than the 17% decline seen from 2015 to 2022.

China didn’t just dump Treasuries. They reportedly turned to agency bonds — securities issued by firms like Fannie Mae. These bonds carry similar credit ratings but pay better. From 2018 to early 2020, China increased its agency bond holdings by 60%, reaching $261 billion.

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