Hong Kong taking lead role in globalisation of renminbi with expansion of bilateral trading and new products: finance chief
- Financial Secretary Paul Chan says move will mitigate risks arising from global political and economic changes
- Hong Kong fully committed to widening the range of offshore yuan asset options in city, according to finance chief
Hong Kong is seeking to expand bilateral trading of the renminbi and launch new products to take a leading role in internationalising the currency, according to the city’s finance minister.
Revealing that talks were also under way with mainland Chinese authorities to launch yuan treasury bond futures locally, Financial Secretary Paul Chan Mo-po on Sunday said Hong Kong had stepped up efforts to help diversify the renminbi to not only globalise it but mitigate risks arising from worldwide political and economic changes.
“In recent years particularly, the geopolitical situation has become increasingly complex. The United States banking industry has been in turmoil in recent months, and the US government has been plagued by long-term debt problems,” he wrote on his weekly blog.
“Furthermore, the US has even frozen or seized the assets of other countries, all of which have damaged the international community’s confidence in the US dollar and driven many countries to diversify their foreign exchange reserves.”
In March, the Federal Deposit Insurance Corporation, an independent agency tasked with maintaining stability and public confidence in the US financial system, seized the assets of Silicon Valley Bank, marking the largest bank failure since Washington Mutual at the height of the 2008 financial crisis.
In 2021, the US froze nearly US$9.5 billion in assets belonging to the Afghan central bank and in 2022, it did the same to US$300 billion of Russia’s gold and foreign exchange reserves because of sanctions implemented in response to the conflict in Ukraine.
Chan said Hong Kong was fully committed to widening the range of offshore yuan asset options in the city, providing comprehensive solutions to the renminbi as an international payment, investment and reserve currency.
“This will make the entire offshore renminbi ecosystem more vibrant,” he argued.
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As of April, the city had amassed nearly 1 trillion yuan (US$140 billion) in deposits, the largest offshore renminbi pool in the world.
Chan revealed that local regulators, including the Securities and Futures Commission, Hong Kong Exchanges and Clearing (HKEX) and the Hong Kong Monetary Authority, were in talks with mainland authorities to launch yuan treasury bond futures in the city.
He anticipated investors would have an appetite for such products after the sale of 15 billion yuan bonds earlier this month, five times more than the batch issued in January. The bonds were part of a US$6 billion green bond programme.
As a breakthrough, the financial chief particularly singled out the imminent launch of dual-currency trading counters, which will allow investors to freely trade stocks in Hong Kong dollars or the renminbi on the local stock exchange on June 19.
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About 24 Hong Kong-listed companies, ranging from internet businesses to finance, property and consumer services, have applied for permission to open a renminbi share-trading counter alongside the existing Hong Kong dollar counter.
Chan said their combined market capitalisation represented about 40 per cent of the Hong Kong stock market’s total, and the companies would provide more options for the city and other offshore renminbi holders.
These companies included Anta Sports Products, Kuaishou Technology and HKEX.
In addition, a dual-counter market-maker regime will be included in the new model, which will boost the liquidity of renminbi‑denominated stocks and minimise the discrepancy in currency exchange.
Chan noted that nine participants had obtained market maker licences.
The financial secretary also pointed to other efforts, including the expansion of eligible securities in the Shanghai-Hong Kong Stock Connect, the launch of northbound trading in the Bond Connect and the successful issuance of the first 10-year renminbi bonds.
Chan noted there was plenty of room for growth in terms of using the renminbi as a global cross-border payment and settlement currency.
A case in point is the renminbi’s low representation in international transaction settlements or via the Society for Worldwide Interbank Financial Telecommunication (Swift). It only accounted for 3 per cent of the world’s settlement and reserve currency even though the country made up 13.5 per cent of global trade.
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Francis Lui Ting-ming, professor emeritus at Hong Kong University of Science and Technology, said countries were keeping fewer US dollars as part of their reserves, as there were risks of sanctions. But the pace of change would be slow, he told a radio interview earlier in the day.
Some nations, he noted, were also using the yuan as a reserve currency, but it would not be able to overtake the US dollar at present as it was not freely traded on the market.
Lui also said Chief Executive John Lee Ka-chiu’s recent visit to the Middle East showed the city could play a further role as an offshore yuan trade settlement centre by attracting investments in the currency from countries in the region.
The city’s financial industry would need to come up with corresponding investment products, he added.
