When Hong Kong was established as a free trading port in 1841, there was no local currency in everyday circulation. Foreign currencies such as Indian rupees, Spanish and Mexican 8 reales, Chinese cash and British currency were employed. In 1845, the Spanish and Mexican 8 reales coins were set at a value of 4 shillings 2 pence sterling. In 1863, the dollar was pegged to silver at a rate of 1 dollar = 24.44 grams pure silver and the first coins were issued. Banknotes also appeared in the 1860s, with a number of different private banks issuing notes.
The Basic Law of Hong Kong and the Sino-British Joint Declaration provides that Hong Kong retains full autonomy with respect to currency issuance. Currency in Hong Kong is issued by the Government and three local banks under the supervision of the territory's de facto central bank, the Hong Kong Monetary Authority. Bank notes are printed by Hong Kong Note Printing Limited.
A bank can only issue a Hong Kong dollar if it has the equivalent exchange in U.S. dollars on deposit. The currency board system ensures that Hong Kong's entire monetary base is backed with U.S. dollars at the linked exchange rate. The resources for this backing are kept in Hong Kong's exchange fund, which is among the largest official reserves in the world. Hong Kong also has huge deposits of U.S. Dollars, with the 2008 estimate being at over US$700 billion.
The Hong Kong Dollars is the 9th most traded currency in the world.