The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.
Entry of more players in renminbi business is good for Hong Kong
Anita Fung says Hong Kong has no reason to fear competition in the offshore renminbi business, given our ties with the mainland, and should seek instead to work with other centres
Years from now, when people look back at the renminbi's path to internationalisation, they will agree that May 2013 was a significant month. According to the Hong Kong Monetary Authority, it marked the first time that the volume of renminbi cleared under its real time gross settlement system exceeded that of the Hong Kong dollar. For the yuan, daily turnover was an average of 390 billion yuan (HK$494 billion); for the Hong Kong dollar, it was HK$487 billion.
This latest milestone is significant on two fronts. The first is the process of renminbi internationalisation itself. Since offshore renminbi business began in Hong Kong in 2004, China has heavily promoted the use of its currency in global trade and investment. In 2012, 12 per cent of China's cross-border trade - amounting to 2.94 trillion yuan - was settled in renminbi. By 2015, that figure will jump to one-third, we estimate.
Likewise, yuan-denominated cross-border investment is on the rise. Since the launch of the first dim sum bond, market issuance in Hong Kong has grown from 10 billion yuan in 2007 to 276 billion yuan last year. Our forecast for this year is in the region of 280-360 billion yuan.
As the renminbi becomes more accepted as a global trade, investment and - ultimately - reserve currency, the volume cleared under the HKMA's real time gross settlement system will only increase. By itself, the fact that the renminbi (a not-yet fully convertible currency) has a higher daily turnover than the Hong Kong dollar (a fully convertible currency) is already a sign that international adoption is picking up. This milestone is just a foretaste of the renminbi's potential as China continues its currency reform.
The increasing volume of renminbi cleared in Hong Kong is also significant for the city and its status as the leading offshore renminbi centre. The first half of this year saw the establishment of two more offshore renminbi hubs - Taiwan in February and Singapore in May. Sceptics feared that Hong Kong would lose its lead. Encouraging data coming out of the new hubs only reinforced their supposed concerns.
On June 11 in Taiwan - just over four months after renminbi business kicked off - renminbi deposits surpassed 70 billion yuan. Meanwhile, in Singapore, 53 transactions worth 1.61 billion yuan were cleared on the day the renminbi business was launched.
But Hong Kong was not to be outdone. As of April, renminbi deposits in Hong Kong stood at 677.2 billion yuan; in the same month, Hong Kong settled 84 per cent of China's renminbi-denominated cross-border trade.
Hong Kong is in an enviable position. Because of its historic and geographic ties with China, we own a "first mover" advantage. Also, we are often the testing ground for the Chinese government's experiments with its currency.
Our list of "firsts" is extensive. We were one of the first areas outside mainland China covered by the pilot scheme for cross-border trade settlement; we are home to the first dim sum bond market; and, with the development of Shenzhen's new Qianhai enterprise zone, we will soon become the first offshore participants in China's domestic lending market since 1949.
It is precisely because of our special relationship with mainland China that we should not view Taiwan and Singapore as threats. Rather, they should be our collaborators. Offshore renminbi business is still in its infancy, and considerably more can be achieved through co-operation. This is not a zero-sum game.
As the leading offshore centre, we should take the initiative and work with Taiwan and Singapore (and any and all that may follow) to make the pie that is offshore renminbi business bigger. What is good for the renminbi is good for Hong Kong.
At the same time that we foster greater collaboration with other centres, we should continue to develop new instruments that can contribute to further utilisation of the renminbi around the world. We sit atop the largest renminbi liquidity pool outside China.
As of the first quarter of 2013, the size of the pool (including deposits and certificates of deposit) was more than 800 billion yuan. The figure is expected to rise threefold by 2015. This represents a huge demand for renminbi products and services.
Internationalisation of the currency will continue, and Hong Kong will remain the leading offshore renminbi centre. Rather than worrying about losing our edge to phantom competitors, we should remain focused and keep up the good work we have done - and that is to help drive the renminbi to become a global currency.
Anita Fung is chief executive officer of HSBC Hong Kong