The central bank has ignored calls by senior Hong Kong bankers and left in place the city's daily exchange cap of 20,000 yuan (HK$24,500). The decision, which was announced during a visit yesterday by People's Bank of China deputy governor Hu Xiaolian, puts the city at a disadvantage to the other offshore-yuan trading centres, London and Singapore. Hu said, however, said the PBOC may soon allow non-Hong Kong residents to open accounts for trading yuan in the city, a move local bankers see as a boon for business. Hu detailed the developments in a briefing in which she said the central bank considered the current daily cap to be 'suitable for the demand from Hong Kong citizens'. 'One could exchange up to 600,000 yuan a month, which is a lot, and many people do not exchange that much,' Hu said. 'As such, the PBOC at present has no plan to lift the cap, though we will review it in the long term.' She said the central bank would 'have an answer pretty soon' on calls from Hong Kong banks to let foreigners open yuan accounts. Hu also said the PBOC would encourage more overseas companies to issue yuan-denominated, or 'dim sum', bonds locally to strengthen the city's role as an offshore yuan trading centre. Louis Tse Ming-kwong, director of VC Brokerage, said the decision not raise the cap was 'bad news for Hong Kong'. 'The exchange cap means Hong Kong could find it hard to compete with Singapore, London or other markets keen to develop as offshore yuan centres, where they do not have the exchange cap,' Tse said. 'If investors find it easier to exchange the currency in these markets, they will abandon Hong Kong.' The 20,000 yuan cap was first set in 2004, when Beijing, in its cautious first steps to broaden the yuan's reach, allowed yuan exchanges in Hong Kong. Since then, other financial centres have been begun yuan exchange without such caps. Bankers were hoping the PBOC would level the playing field. 'The cap is definitely too small for those who want to trade yuan bonds or yuan shares,' Tse said. 'For Hong Kong to develop yuan shares or other yuan investment products, investors need to have a lot of yuan on hand, as they need to settle the deals one or two days after the transaction.' Bankers believe the PBOC is concerned that the amount exchanged would become too great if the cap was lifted in Hong Kong, which has a greater share of investors interested in the currency. In May, Bank of China (Hong Kong) deputy chief executive David Wong See-hong told a conference that raising the cap and allowing yuan accounts for foreigners were both 'important steps in the internationalisation of the yuan and the strengthening of Hong Kong's role as an offshore yuan market'. Andrew Fung, executive director Hang Seng Bank, yesterday welcomed the prospect of more yuan accounts, saying it would spur more people to open them locally. The Hong Kong Monetary Authority also lauded the steps to boost yuan business in the city. Investments in yuan products and yuan deposits have multiplied as investors bet the yuan will continue to gain against the US dollar. The yuan has risen more than 30 per cent against the US dollar since 2004, gaining 4.7 per cent last year. But as the yuan's growth slowed, local retail yuan deposits fell 11.7 per cent between November and May.
