The Hong Kong government released inflation data this week that showed year-on-year CPI shot up to 7.9% in July, more than 2.3% above the level in June. Inflation figures have been going up since late last year, but this is by far the most violent increase.

The Hong Kong dollar is pegged against the US dollar, making rates in Hong Kong a slave to those in the US. But the Federal Reserve is having to deal with inflation that is less than half the level in Hong Kong. Purchasing power in the special administrative region is fast being eroded.

That should lead to a rush — or, more accurately, a greater rush — to local bank branches that offer multi-currency accounts. It seems inevitable that most of the money converted will go into renminbi. Few people will enjoy seeing inflation in Hong Kong rise so rapidly, but capital markets bankers should take heart that it will make future deals a bit easier to sell.

ECM bankers in particular should see the upside. A real estate investment trust owned by Singapore’s Ascendas is planning to launch a deal on Hong Kong stock exchange next month, becoming only the second company — after Hui Xian Real Estate Investment Trust — to market an offshore renminbi IPO.

Hong Kong depositors are famously hungry to take part in IPOs, and if renminbi deposits spike as a result of the rise in inflation, the leads on the Ascendas deal will have an easier time during marketing. Retail investors were not attracted to the first deal in any real size, in part because it was priced at a pretty punchy level. But as deposits grow, the lead managers will be able to get away with aggressive valuations much more easily.

The death of the HK dollar? Not yet.

    The rise in importance — and value — of the renminbi has led to some speculation that the Hong Kong dollar will soon be replaced by the offshore renminbi. But the Hong Kong dollar is not going to disappear anytime soon. Hong Kong’s Basic Law — the constitution which came into effect when the United Kingdom handed over control of the territory to China in July 1997 — enshrines the principle of “one country, two systems”, the idea that Hong Kong can keep some independence from China will still being part of its sovereign territory. The Hong Kong dollar is explicitly mentioned in the Basic Law, making it part of China’s de facto independence from the Chinese government.

So perhaps Hong Kong should scrap the peg against the US dollar and let its currency float? This would give the Hong Kong Monetary Authority, the de facto central bank, the power of setting local interest rates, helping it put the sword to inflation.

Don’t hold your breath. Economists think Hong Kong will not change the currency peg soon, in large part because of what is not written in the Basic Law: Hong Kong will not bite the hand that feeds it, and the territory will rely on the mainland to prosper for decades to come.

That will make offshore renminbi accounts look more and more like havens for damaged Hong Kong depositors — and will help the offshore renminbi market continue to grow at a breakneck pace.