Thai payment link-up boosts Hong Kong hub role

HKMA seals cross-border settlement system with Bank of Thailand, bolstering financial stability and reducing risks in forex transactions

PUBLISHED : Tuesday, 29 July, 2014, 1:05am
UPDATED : Tuesday, 29 July, 2014, 4:19am

A cross-border payment system linking the Hong Kong Monetary Authority and the Bank of Thailand will bolster regional financial stability and trim risks by allowing Asian players to settle transactions without having to wait hours for the United States market to open.

The system will connect the US dollar in real time through the settlement system in Hong Kong with that for the baht in Thailand.

The HKMA has similar set-ups with the central bank of Malaysia, forged in 2006, with mainland China in 2009 and Indonesia in 2010. Indonesia and Thailand are the two biggest economies in Southeast Asia.

This tie-up … will help develop Hong Kong as a regional payment hub

"The HKMA will continue to look for opportunities to collaborate with Asian neighbours to develop infrastructural solutions to meet growing regional demand for more efficient and robust settlement solutions," HKMA deputy chief executive Peter Pang Sing-tong said.

Krirk Vanikkul, a deputy governor at the Bank of Thailand, said the system would allow banks to reduce settlement risks.

Pang said the link "symbolises the determination of the HKMA and Bank of Thailand to work together to promote financial integration and financial stability in the region through the linkage of critical financial infrastructure".

According to the Bank for International Settlements, the average daily turnover in foreign exchange transactions in Asia was US$1.23 trillion in April last year, up 27.5 per cent from US$962 billion in April 2010. About 75 per cent of the transactions in Thailand involves the baht and the US dollar.

Hong Kong, whose currency is pegged to the US dollar, has a large pool of greenbacks and a local clearing system.

Andrew Fung Hau-chung, an executive director of Hang Seng Bank, said the tie-up allowed Hong Kong to offer its platform for other markets to use for settlement and this would boost turnover in the system.

There are more than 90 banks, including 18 active in the Thai markets, using the city's settlement system, with an average daily turnover of US$22 billion.

"This tie-up shows other central banks have confidence in our system and will help develop Hong Kong as a regional payment hub," Fung said. "For the Bank of Thailand and other central banks, this means they do not need to set up their own US dollar settlement system."

The linkage will speed up settlement and cut risk because traders can settle during the Asian time zone and not wait for the US market to settle their transactions.

Christopher Cheung Wah-fung, a legislator for the financial services sector, said the HKMA's link-up with other central banks along with the alliances reached by Hong Kong Exchanges and Clearing with other exchanges would bolster Hong Kong as an international financial centre.

"A cross-border link-up between central banks and exchanges would boost turnover. The most important thing is for our regulators to focus on risk management related to this cross-trading,'" Cheung said.

HKEx tied up with its counterparts in Singapore and Tokyo for cross-trading of derivative products. The cross-stock trading system between HKEx and Shanghai is to begin in October.

Fung said among the link-ups, the yuan-US dollar settlement was the most important as it strengthened Hong Kong's role as a yuan trading centre, a role that many cities such as London, and Singapore were all eyeing.