Although Hong Kong is now officially a territory of China, the city and surrounding areas still use the Hong Kong dollar as a jurisdictional currency. Like all current dollar currencies, the Hong Kong dollar is divisible into 100 cents under the decimal system. In spoken Cantonese, the dollar is referred to as a baat and cents are called bun. The history of the Hong Kong dollar goes back to its establishment as a free port in 1841. At the time, no local Hong Kong currency existed. Several foreign currencies were used in Hong Kong, including Spanish 8 reales, Indian rupees and Chinese coins. Because Hong Kong was a colony of Great Britain, the British government took it upon themselves to force a fixed exchange value of the much-used Spanish 8 reales to the pound sterling. The original value was one piece-of-eight, as the 8-reales coin is known, to 4 shillings and 2 pence.
The British tried introducing their own sterling coins into Hong Kong, but they never gained popularity with the local people. Instead of continuing to try to force sterling coinage on Hong Kong, Great Britain began minting alternative coins for use in the colony and, in 1866, established a local mint to issue new silver Hong Kong dollar and half-dollar coins. The Chinese were angered by the establishment of the Hong Kong mint, and it is was forced to close down two years later.
When a silver shortage struck, Spanish coins became scarce in Hong Kong and the British were forced to mint special trade dollars in India for use in Hong Kong. Due to continuing issues with silver, the silver standard was abandoned in both Hong Kong and China in 1935 for a pegged exchange rate to the pound sterling. This is marked as the official beginning of the Hong Kong dollar as a distinct unit of currency. The pound sterling peg continued until 1972 when the Hong Kong dollar was pegged to the U.S. dollar at a ratio of 5.65 HKD: 1 USD. Today, the exchange rate is set on a ranged peg system. The Hong Kong Monetary Authority oversees Hong Kong dollars and does not allow the issuance of HKD by a bank unless the bank has equal reserves of U.S. dollars. It is estimated that Hong Kong has a total of 700 billion USD in reserves.