> For the complete documentation index, see [llms.txt](https://aero-wong.gitbook.io/cashless-product-management-to-crossborder-payment/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://aero-wong.gitbook.io/cashless-product-management-to-crossborder-payment/cryptocurrency/case-study-hkd-a-paper-stablecoin.md).

# Case Study: HKD - A Paper Stablecoin?

The Hong Kong dollar's peg to the U.S. currency is a beacon of stability.

![](https://2703246214-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2Fsm3nn6KioJV052J6iHGZ%2Fuploads%2FJL1hOuIbteCTfiSqDjMR%2FScreenshot%202022-08-04%20at%203.23.18%20PM.png?alt=media\&token=1801f044-696a-4aea-8f69-e81c8c51f924)

Pegged to the US dollar for nearly four decades, the currency in the Asian financial center is a stablecoin, albeit of the paper variety. Most days it relies — just like UST — on arbitrage to hold its value at 7.8 to the dollar.

The Hong Kong Monetary Authority runs a pure currency board. All of [HKMA’s monetary base is backed 110% by US dollar assets](https://www.hkma.gov.hk/media/eng/doc/key-information/press-release/2022/20220429e3a1.pdf#page=2). And while fixing the exchange rate, the authority deliberately lets interest rates float freely to absorb pressures on the peg. When the local currency gets sold off, there’s a capital flight from Hong Kong. But that automatically raises interest rates enough to lure buyers back.