Global demand for yuan on the rise
Beijing's efforts to promote currency paying off as trade settlement and holdings in yuan by foreign central banks are on an upward trend
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Beijing's efforts to promote the yuan by developing the offshore yuan business are well supported by increasing trade settlement with the rest of the world in the currency, officials and industry experts said yesterday.
They noted that Asian and European central banks had been increasing their yuan holdings and the continuing appreciation in the currency was boosting its investment appeal for investors.
Speaking at the Paris Europlace Financial Forum yesterday, Norman Chan Tak-lam, the chief executive of the Hong Kong Monetary Authority, the city's de facto central bank, said "globally, demand for [yuan] is inevitably on an upward trend, with increasing trade settlement between China and the rest of the world, as well as investment activities on the mainland, both of which should lift the popularity of the Chinese currency overseas".
HKMA figures show trade settlement in yuan in Hong Kong rose 40 per cent in the first 10 months from a year earlier to 2.1 trillion yuan (HK$2.6 trillion), exceeding the full-year amount last year.
Outstanding yuan loans more than doubled to 70 billion yuan in October from about 30 billion yuan at the end of last year.
Under the "one country, two systems" principle, Chan said Hong Kong had a unique advantage over other offshore yuan centres because of its financial and regulatory infrastructure.
In 2003, Beijing introduced an offshore currency facility in Hong Kong so that overseas investors could use its banking services to tap into the mainland market. Taiwan gained yuan clearing status in August, and Singapore and London are vying to become offshore clearing hubs for Southeast Asia and Europe, respectively.
"Although Hong Kong has a dominant position in the offshore [yuan] business, other cities could play catch-up in the future," Chan said.
He said lenders in Hong Kong should prepare to develop the yuan business with other offshore centres to try to create synergies.
Anita Fung, the chairman of the Hong Kong Association of Banks, said mainland China could double its share of world trade to 20 per cent by 2017-20.
"With the [yuan] system maturing in Hong Kong, trade services in the Chinese currency will also increase alongside," said Fung, who is also the chief of HSBC's Hong Kong operation.
She said the widening of the band within which the currency was allowed to trade could attract more overseas investors and central banks which were trying to diversify their currency holdings in the face of US dollar depreciation and high volatility in the euro.
"Going forward, more international issuers are coming to Hong Kong as they seek funding channels in the offshore yuan, or dim sum, bond market," Fung said.
However, amid liquidity concerns and unattractive yields, issuance of dim sum bonds in Hong Kong remained little changed from last year, with a total size of 95 billion yuan in the year's first 10 months, HKMA figures show.
In that time, yuan deposits in Hong Kong rose 1.7 per cent to 554.8 billion yuan from the same period a year earlier, while Hong Kong dollar-denominated deposits grew 2.2 per cent.