Crucial year:
Monetary Authority
The Hong Kong Monetary Authority is the government authority responsible for maintaining monetary and banking stability. It maintains currency stability within the framework of the Linked Exchange Rate system, helps maintain Hong Kong's status as an international financial centre, and manages the Exchange Fund.
RMB conversion deal to be refined
December 23, 2010
The Monetary Authority and the People's Bank of China have agreed to refine the arrangement for conversions of renminbi conducted by participating banks with their customers for renminbi cross-border trade-settlement transactions.
Monetary Authority Chief Executive Norman Chan today said participating authorised institutions are eligible to square their positions with the clearing bank when there is a shortfall of renminbi arising from conversions with customers for cross-border trade-settlement transactions.
Participating authorised institutions should first utilise the renminbi trade proceeds purchased from their customers to satisfy requests for renminbi conversions for trade-settlement transactions before purchasing renminbi through the Clearing Bank in the China Foreign Exchange Trading System in Shanghai.
Participating authorised institutions can only purchase renminbi through the Clearing Bank in Shanghai for their customers in relation to trade transactions due for payments to the Mainland within three months.
Demand estimates
It is estimated the demand for renminbi conversion in Shanghai will be within 4 billion yuan in the first quarter of 2011. The volume of conversion will be assessed after the first quarter taking into consideration the actual circumstances.
To maintain a stable supply of renminbi, the Monetary Authority will, as a standing arrangement, provide renminbi funds of 20 billion yuan through its currency-swap arrangement with the People's Bank of China, for cross-border renminbi trade settlements.
Given the convertibility of renminbi is restricted at present, the authority will require authorised institutions to limit their renminbi net open positions (whether net long or net short) to 10% of their renminbi assets or liabilities.
The Monetary Authority and People's Bank of China have discussed the issue of credit exposure of the participating authorised institutions to the clearing bank. It is considered that this could in principle be resolved by the authorised institutions establishing custodian accounts with the clearing bank.
Further discussion
The Monetary Authority, the People's Bank of China, the clearing bank and the participating authorised institutions will further discuss the details of such an arrangement including the related legal documents and operational procedures. It is hoped the arrangement can be implemented as soon as early next year.
With regard to the Exchange Fund's investment in renminbi assets, the Monetary Authority's eligibility to invest in the interbank bond market on the Mainland has been approved by the People's Bank of China. The Monetary Authority is working closely with the People's Bank of China on the implementation arrangements.
Mr Chan said 2011 will be a crucial year for the development of offshore renminbi business in Hong Kong.
“We have made very good progress this year. Along this positive trend, and with the number of Mainland enterprises eligible for the cross-border renminbi trade-settlement scheme recently been substantially increased to 67,000 and the refinements that we are going to introduce, I am confident the offshore renminbi market in Hong Kong will continue to develop progressively in the coming year, both in terms of the depth and breadth of the market and product development."
