Hong Kong's unique edge will see it flourish as an offshore renminbi hub
Norman Chan says that, while there's no room for complacency, Hong Kong should not feel threatened by the rise of renminbi business elsewhere, given its distinct advantages as an offshore hub linked to the mainland
It was early summer, June 2003. On the flight from Hong Kong to Beijing, there were only a handful of passengers. Their faces were covered with surgical masks. Changan Avenue, usually a hustle-and-bustle district in Beijing, had apparently not yet fully recovered from severe acute respiratory syndrome. In the meeting room at the People's Bank of China, everyone was sweating, as the air conditioning had been switched off to prevent the spread of the disease. I still have a vivid picture in my mind of this visit to Beijing with my colleagues a decade ago.
Next week marks the 10th anniversary of the launch of renminbi banking business in Hong Kong. While conducting currency exchanges and investment in renminbi is pretty much a "fact of life" today, all this could not have been possible without the hard work of a lot of people over the years.
Since 2009, there have been more bridges linking the onshore and offshore markets, enabling renminbi to be increasingly used, circulated and accumulated in overseas markets
The Monetary Authority first raised with the PBOC the idea of introducing personal renminbi business in Hong Kong in November 2001. All arrangements had to be developed from scratch as the renminbi had never been used and circulated outside the mainland. It took rounds of discussions and the work went on despite the outbreak of Sars in March 2003.
A significant breakthrough was made in June 2003, with a consensus on major issues and the overall framework constructed. In November 2003, the State Council approved the introduction of personal renminbi business in Hong Kong and banks in Hong Kong began to offer renminbi deposit-taking, currency exchange, remittance and debit and credit card services to personal accounts on February 25, 2004.
The introduction of the pilot scheme for renminbi cross-border trade settlement in July 2009 was a watershed as renminbi business in Hong Kong moved into its second stage of development. It expanded from serving personal customers to enterprises and institutions, and transformed from just one-way repatriation of renminbi notes to two-way flows of renminbi, marking a crucial step forward to internationalisation of the renminbi.
Since 2009, there have been more bridges linking the onshore and offshore markets, enabling renminbi to be increasingly used, circulated and accumulated in overseas markets. These developments have fostered the rapid and maturing growth of Hong Kong as an offshore renminbi business centre.
Internationalisation of the renminbi is a long and complex journey. In what form and how quickly it goes very much depend on the policy steps taken by the mainland on capital account liberalisation. It is also driven by the dynamics between the evolving policy framework of China's opening-up reforms and the market responses. For instance, the scale of renminbi trade settlement activities will be subject to decisions of the trade counterparties based on their own cost and liquidity considerations. Appreciation of the renminbi may increase the demand for the currency in the offshore market, although it would not be appreciating forever.