Hong Kong can develop as a yuan derivatives market, helping it maintain its position as an international financial centre in the face of competition from Shanghai, according to Frank Song, a director of the Centre for China Financial Research at the University of Hong Kong. The pace of yuan internationalisation was accelerating, analysts said at a seminar yesterday at the Hong Kong General Chamber of Commerce. Ultimately, the Hong Kong dollar will be pegged against the mainland currency. Mr Song said some studies had indicated that the yuan could account for a significant proportion of international currencies in use in the future if Beijing opened capital accounts gradually. However, since yuan internationalisation has benefits and costs, Beijing is unlikely to let the currency become fully convertible in the near future. He said the mainland government could use Hong Kong as a testing ground for yuan internationalisation and that would help to build the city as an important offshore yuan centre. Companies in Hong Kong and Macau will be allowed to use yuan to settle trade in goods with partners in Guangdong and the Yangtze River Delta under a pilot programme announced in Beijing late last year. The challenge to Hong Kong is that Shanghai will also start its test on yuan trade settlement and as a clearing centre. Last month, the central government endorsed a plan to make Shanghai a global financial and shipping centre by 2020, sparking concerns that Hong Kong's status would be reduced. Mr Song said Hong Kong could leverage its open access to the rest of the world to strengthen its international financial status. 'It can develop as a yuan derivatives market [in Hong Kong] before Shanghai,' he said, adding the city could have the 'first mover' advantage if it could develop financial instruments to help hedge yuan risks. Yang Jiewen, a senior strategic planner at the economics and strategic planning department of Bank of China (Hong Kong), also said Hong Kong should adjust and prepare now while the yuan was not fully convertible. Mr Yang also suggested the city could enhance its co-operation with the Pearl River Delta because cross-border development generated huge demand for Hong Kong's capital and professional services.