The Hong Kong Monetary Authority said yesterday that yuan deposits had reached 510 billion yuan (HK$610.24 billion) by April, but stressed that concerns about a marginalisation of the local currency are 'ill-founded'. Responding to commentators who suggested the yuan is a potential substitute for the Hong Kong dollar, HKMA chief executive Norman Chan Tak-lam wrote that surging yuan deposits did not mean locals were abandoning the Hong Kong dollar. The growth in yuan deposits was mainly being driven by yuan funds 'remitted by mainland enterprises into banks in Hong Kong to pay for imports of goods and services, rather than conversion from Hong Kong dollars by Hong Kong companies', Chan said. Two-thirds of the yuan deposits in Hong Kong are from corporate clients, while the rest are from personal customers, according to the city's de-facto central bank. Yuan deposits rose 750 per cent to 510 billion yuan in April from 60 billion yuan in January last year, and now make up about 8 per cent of total deposits in Hong Kong. At the same time, Hong Kong dollar banknotes, along with credit cards and debit cards, continue to be the primary means of payment in daily domestic spending by Hong Kong residents, according to the HKMA. The reason companies are showing a growing preference for using the yuan as the cross-border trade currency is mainly to hedge foreign exchange fluctuation risk and to hold yuan in view of its long-term appreciation, according to an HSBC survey of 1,300 companies on the mainland. Montgomery Ho, head of commercial banking at HSBC China, said the bank expected more than half of total mainland trade, or about US$2 trillion, will be settled in yuan by 2015. Yuan trade transactions settled through Hong Kong made up more than 80 per cent of the mainland's total yuan trade settlements in the first quarter. As for individual yuan deposits, some do come from the conversion of Hong Kong dollars for payment, savings or investment purposes. But the HKMA added that such currency switching is normal asset allocation behaviour by individuals and 'should not be mistaken as evidence for Hong Kong residents' reluctance to use or hold the domestic currency because of a loss of confidence'. Raymond Yeung, ANZ senior economist for China, said that given its storage value and for transaction purposes, there is a chance the yuan could replace the Hong Kong dollar - but not in the near future. For now, he said it was viable to have two popular currencies and frequent yuan use did not mean the city must change its peg to the US dollar.