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Hong Kong Monetary Authority (HKMA)

Yuan funding rules eased to shore up Hong Kong's offshore lead

With an eye on global rivals, HKMA acts to boost banks' yuan liquidity with overnight and one-day options, including same-day service

PUBLISHED : Friday, 26 July, 2013, 12:00am
UPDATED : Monday, 27 June, 2016, 11:50am

The Hong Kong Monetary Authority (HKMA) has introduced two measures to enhance local banks' yuan liquidity in its latest effort to fend off increased international competition for a slice of the offshore yuan business pie.

The de facto central bank announced yesterday that banks would, from today, be able to get overnight and one-day yuan funding from the HKMA in addition to seven-day funding and that they could receive it on the same day if they put in the request before 3pm. Previously, at least one day's notice had been required.

It is true that Hong Kong still has the first-mover advantage in being an offshore yuan trading centre but there is no monopoly for Hong Kong to do yuan business

An HKMA spokesman said past experience showed the peak of Hong Kong bank borrowing from the authority was nine billion yuan (HK$11.3 billion) in a single day, before a long holiday. "The two measures should be able to enhance yuan liquidity management for banks," he said.

The HKMA has implemented many measures to boost the city's yuan business. In April it removed the yuan net open position limit for Hong Kong banks and lifted the 25 per cent minimum liquidity ratio for yuan deposits. Last month it launched the world's first offshore yuan interbank rate fixing.

"It is true that Hong Kong still has the first-mover advantage in being an offshore yuan trading centre but there is no monopoly for Hong Kong to do yuan business," the spokesman said. "As such, the HKMA has to do more to enhance our competitiveness."

The yuan is not yet fully convertible but since 2009 Beijing has allowed overseas parties to use the currency to settle trade and investment.

Last month, US$3.37 trillion worth of yuan was transferred in and out of Hong Kong, up 96 per cent year on year. However, Hong Kong's share of offshore yuan business dropped to 78 per cent, down from 81 per cent a year earlier, with other markets catching up. London was second on the league table last month with US$238 billion and Singapore third with US$127 billion. Trailing were Taiwan at US$79 billion, the United States at US$66 billion and Australia at US$26 billion, payment data company Swift says.

Hang Seng Bank executive director Andrew Fung welcomed the measures, saying they provided a new backstop to liquidity and were part of the evolution of the market.

The mainland has bolstered its efforts to internationalise the yuan since 2009 as part of its ambition to make it a reserve currency like the US dollar.

Hong Kong was anointed as the first offshore yuan trading centre in 2003. In the past two years, global rivals - led by London and Singapore - have been making aggressive moves to take market share in the lucrative trade.