Those emerging market countries whose currencies have been battered of late by the financial maelstrom may be looking with some envy at Hong Kong.

For on Friday, the territory celebrates the 25th birthday of its currency's peg to the US dollar.

The arrangement, which is designed to reduce exchange rate volatility - thereby encouraging trade and investment, particularly with dollar-based partners - has survived multiple property and stock market crashes and also a concerted attack by speculators during the Asian financial crisis.

The peg links the Hong Kong and US dollars at a rate of HK$7.8 to US$1, and a simple logic underpins its mechanics, helping the system to self-correct in times of extreme stress.

Every 7.8 Hong Kong dollars in circulation must be backed by one US dollar. Were there to be a run on the Hong Kong dollar today, local interest rates would soar as the territory's money supply shrank. That, in turn, should increase demand for the Hong Kong dollar and help stop the run.

Since October 17 1983, the peg has ably served two very different sovereign masters - Queen Elizabeth II and the Chinese Communist party - while also providing the territory with a firm anchor through repeated political and economic storms.

Notwithstanding the inexorable rise of the Chinese economy and currency, the renminbi, China's most important financial centre is content to stick with a proxy US dollar currency whose base interest rate closely tracks that set by the US Federal Reserve.

Such a peg can have its drawbacks. It can lead to volatile swings in asset prices when Hong Kong's economic cycle is out of sync with America's. The greenback's decline over recent years, especially vis-à-vis the renminbi, has also exacerbated inflationary pressures in Hong Kong, which imports most of its water and food from China. But these are prices the territory remains willing to pay.

"Where [else] should we go?" Donald Tsang, Hong Kong's chief executive, told the Financial Times at a press briefing on Thursday. "We have been linked up with the US dollar for more than two decades. We must take the rough with the smooth.

"I do not believe in the strength of an isolated, individual currency like the Hong Kong dollar [to stand alone]," he added. "If the US dollar sinks we will sink with it."

Hong Kong's economic fortunes are of course closely tied to those of its sovereign. Enzio von Pfeil, a Hong Kong-based economist and investment adviser, describes the territory as "the waterski off the back of the Chinese speedboat".

But China's central bank, the People's Bank of China, would have to make the renminbi fully convertible and prove its ability to manage an open capital account before a tie-up between the renminbi and the Hong Kong dollar could be contemplated.

"I hadn't really mapped it out very clearly in my mind, but I did say at the time it would be very durable," remembers John Greenwood, Invesco chief economist, who is widely regarded as the architect of the peg. As a Hong Kong-based economist and editor of the Asian Monetary Monitor during the early 1980s, Mr Greenwood first proposed the currency board mechanism adopted a quarter-century ago during a run on the Hong Kong dollar.

"I have never seen any evidence that any other arrangement would be unequivocably superior to what we have now," adds Tony Latter, who was Hong Kong's deputy secretary for monetary affairs when the peg was adopted.