This is an opinion piece by Margarita Groisman, a tech engineer invested in the power of Bitcoin to help people around the world.
Many remember the intensity and incredible spirit of the people of Hong Kong during the Events of 2019 which went viral on all of our screens. Thousands of ordinary citizens took to the streets to protest Excessive use of force by the Chinese and an aggressive legislative takeover that went against Hong Kong Basic Law. Beginning in March 2019 with a sit-in at government headquarters following an amendment to the mainland China extradition policy, the protests continued with growing grievances.
Hong Kong, once a beacon of free economic activity, a center of trade and commerce, and a free, democratic state with a level of sovereign control, would soon be taken over by mainland China.
The COVID-19 outbreak has largely ended the protests and the West has turned away from the plight of Hong Kong’s people. A 2020 document from Beijing said that “global competence” would be achieved by the Communist Party of China (CCP) over Hong Kong, with people’s adherence to COVID-19 restrictions giving China the ability to quickly sweep away opposition using force and without interference from foreign powers.
Freedoms that Westerners take for granted, such as the right to demonstrate and freedom of expression, not does not exist anymore in Hong Kong with all forms of political opposition now silenced. The new national security law, designed to prevent “secession, foreign interference, terrorism and subversion against the central government” was passed in May 2020, bypassing the local legislative process and allowing China to take unprecedented control of Hong Kong.
Hong Kong formerly dedicated Basic Lawgranting it a “capitalist system and way of life” and granting it “a high degree of autonomy”, including independent executive, legislative and judicial powers for 50 years, was broken and abolished by the will of the CCP.
Since then we have seen a mass exodus of the people of Hong Kong as basic freedoms enjoyed by residents have virtually all been taken away. We have also seen a weakening of Hong Kong’s economic strength
COVID-19 and the continued suppression of freedom in Hong Kong
While Hong Kong has implemented a strict response to the COVID-19 pandemic with a “zero-COVID” policyin March 2022, it reported one of the highest Covid death rates in the world.
This fascinating article about the Atlantic describes the situation in Hong Kong, where COVID-19 has been used by the government to justify and demand absolute population control. Hong Kong has faced extreme and constant shutdowns and continues to fail dramatically while relentlessly advocating a zero covid policy:
“With voices of opposition quiet, Hong Kong’s leaders claimed they could govern more effectively. But in the city’s legislature, overhauled last year to ensure nationalism and obedience are valued over competence and political savvy, suggestions on how to tame the outbreak have included the extremely impractical (using cruise ships as temporary isolation facilities) and the patently absurd (dropping fresh food in Hong Kong by drone). Even this new sense of urgency from lawmakers and the government only emerged after Chinese President Xi Jinping last month spoke of the “primary mission” of bringing the current outbreak under control.
“”Hong Kong’s pandemic response definitely shows that the NSL [national-security law] the new order is not just about elections and activists, but extends to all walks of life,” Ho-Fung Hung, a professor at the Johns Hopkins School of Advanced International Studies and author of the forthcoming book City on the Edge: Hong Kong under Chinese ruletold me by e-mail.
This strategy had significant effects on unemployment and the city’s financial difficulties:
The Hong Kong dollar is pegged to the US dollar
Despite all the authoritarian changes, Hong Kong still operates with a currency pegged to the US dollar. The Hong Kong Monetary Authority intended to maintain currency trade between HK$7.75 and HK$7.85 for $1. But since the United States has started raising interest rates, and Hong Kong lost significant cash even as the city struggled to maintain its footing. In fact, just between May and July, the Hong Kong dollar balance more than halved.
“For example, the spread between the Hong Kong Interbank Offered Rate (Hibor) and its US counterpart (dollar Libor) widened significantly after the Fed began its aggressive rate hikes, as liquidity in Hong Kong was still very plentiful.(Hibor and Libor represent a daily average of what banks say they would charge to lend to each other.) This spread makes it attractive for traders to borrow in Hong Kong dollars to buy US dollars in order to get the highest yield.This so-called carry trade may push the local currency towards its low end of HK$7.85, prompting the HKMA to intervene.
In some ways, this means that Hong Kong is caught between the political control of the Chinese Communist Party and financial dependence on the US dollar and fiscal policy. Although Hong Kong has seen a stable currency, while Hong Kong the inflation rate for 2021 was 1.57%, an increase of 1.32% from 2020, he experienced a significant increase in borrowing costs due to this massive sale. And while the peg to the US dollar allows Hong Kong to remain at least semi-autonomous financially, the combination of demographic decline hitting property prices in Hong Kong so significantly due to a drop in demand and rising borrowing costs to maintain peg has hit the economy hard. Hong Kong has faced very significant COVID-19 restrictions and as a result unemployment is somewhat reflecting trends in China.
Talk to BloombergGeorge Magnus, an economist and associate at the China Center at Oxford University, was very clear: “It’s up to China to decide if they want to keep the peg in place.”
And it seems clear that the CCP now holds soft power over Hong Kong’s local government and may eventually decide to bring Hong Kong under full economic control. Particularly as China and Russia are working together to create a new reserve currency and the long term future of dollar reserve capacity depending on the Federal Reserve’s success in reining in rising inflation, it looks like Hong Kong’s days of financial autonomy may be limited.
Is Bitcoin a way out for Hong Kong?
Interestingly, given this precarious financial and political situation, Hong Kong was listed as the most ‘crypto-ready’ country in 2022.
This statistic was determined by “factors such as crypto vending machine installations, pro-crypto regulations, startup culture, and a fair tax regime signal a country’s willingness to embrace cryptocurrencies.” Considering these factors, a Forex Suggest study revealed Hong Kong’s position as the country most prepared for widespread cryptocurrency adoption, with a crypto readiness score of 8.6″, per Corner Telegraph. And as previously reported in Bitcoin Magazine, Hong Kong has seen a rise in bitcoin trading during the 2019 protests, showing the need for an effective peer-to-peer exchange that would not be controlled by the Hong Kong government (now a CCP pawn).
Those who stay in Hong Kong stay there because it is home. But as China increasingly tightens its control over the region, the COVID-19 restrictions seem to be endless, and even the most basic freedoms for the city’s population continue to be stripped away. Hong Kong’s long-term outlook is looking increasingly bleak.
This will become increasingly clear if China moves Hong Kong to a yuan-linked currency or a sub China’s state-sponsored digital currency. In fact, China has already made efforts to bring Hong Kong under the state-sponsored e-CNY, or CCPS, a centralized digital currency. After all, “experts close to the People’s Bank of China and state-owned bank officials, however, believe that e-CNY will ultimately contribute to the internationalization of the yuan in the long run,” according to Robert Greene, Carnegie Endowment Scholar.
This would mean the complete end of Hong Kong’s autonomy.
The people of Hong Kong have few options available to them in terms of hope for regional autonomy or any sort of individual freedoms. If citizens were to act quickly, they might choose to go down a different path than the one they are going down now. If the incredible talent and intelligence of the people of Hong Kong embrace the Lightning Network to perform peer-to-peer exchanges on Bitcoin, for example, they might be able to chart a difficult but promising path beyond China’s full control.
The alternative is the current path that Hong Kong finds itself on, where it loses its regional autonomy, its individual freedoms and its ability to make its own destiny.
This is a guest post by Margarita Groisman. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.