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Nov 23, 2011
The mainland has doubled its currency swap arrangement with Hong Kong to 400 billion yuan (HK$490 billion) - a move that will consolidate the city's role as a major offshore yuan trading centre.
The new agreement between the People's Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) will supersede the accord signed in January 2009 for another three years.
Essentially, it gives Hong Kong greater access to the mainland central bank's yuan pool and will encourage more businesses to use the yuan as an invoicing currency. This will in turn help Beijing to make the currency global.
The move comes at a time when the offshore yuan market has been hit by global financial volatility since late September. Standard Chartered bank economists attribute the volatility partially to the exhaustion of the trade conversion quota for offshore yuan.
The latest move would produce a "useful psychological and potential physical cushion", market experts said.
HKMA chief executive Norman Chan Tak-lam yesterday said the new agreement "is crucial in helping us to provide liquidity, when necessary, to maintain the stability of the offshore renminbi market in Hong Kong".
The swap line with Hong Kong is the biggest among the dozen that Beijing has signed with other economies since 2008 to promote the use of the yuan.
The result has been a surge in the use of yuan in trade and investment, particularly in Hong Kong. More than 9 per cent of China's total trade has been settled in yuan this year, up from just 0.7 per cent a year ago.
And of all China's yuan-based trade in the first half of this year, 84 per cent was carried out by Hong Kong banks, up from 73 per cent over the whole of 2010.
The yuan business has become increasingly important for local banks and businesses. The government has listed developing offshore yuan as a strategic direction for the city's future economy.
The explosion in yuan trade has boosted yuan deposits in Hong Kong to 622 billion yuan as of the end of September, totalling more than 10 per cent of total deposits, up from around 1 per cent in January last year, HKMA data shows.
Chan said the development of the yuan business in Hong Kong was encouraging and the arrangement to double the swap size could enable the authorities to keep the offshore yuan market stable and with sufficient liquidity.
"The importance of the yuan business to Hong Kong has been limited by the currency's convertibility," said Zhao Xijun, an economist at Renmin University in Beijing. "The expanded amount of yuan available in Hong Kong will make it easier to get hold of and use the currency."
Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said yesterday that with the mainland likely to open capital accounts wider in five years, further development of yuan-denominated stocks, derivatives and commodities in Hong Kong was expected.
xuejun.cai@scmp.com Copyright (c) 2011. South China Morning Post Publishers Ltd. All rights reserved.