Monetary Authority Chief Executive Joseph Yam has hailed the Central Government's decision to expand renminbi business in Hong Kong, adding the move is a milestone for renminbi entering the international arena.

The State Council agreed yesterday to extend clearing and settlement arrangements for renminbi business carried out by local banks in Hong Kong to cover funds raised in the city by Mainland financial institutions through the issuance of renminbi-denominated financial bonds.

Mr Yam told reporters today the decision has strategic importance as Hong Kong is the first place where Mainland financial institutions can issue renminbi-denominated financial bonds.

Unique system

If Hong Kong's Real Time Gross Settlement System is extended to cover renminbi, Mr Yam said the system will be unique in the world, covering four denominations - renminbi, Euro, US and Hong Kong dollars, adding this will be crucial to Hong Kong's status as an international financial hub.

The People's Bank of China said it will offer corresponding clearing arrangements for Mainland financial institutions issuing renminbi financial bonds in Hong Kong. The technical preparations are underway and the business will be introduced after the relevant preparation work is completed.

The new business will widen the channels for renminbi held by the Hong Kong households and enterprise to flow back to the Mainland, thereby contributing to the development of economic activities between the Mainland and Hong Kong, and strengthening Hong Kong's status as an international financial centre.

More choices

The move will also increase new market participants and bonds currencies, helping to expand the Hong Kong banks' asset scope and the choices for renminbi-denominated investment by Hong Kong households and enterprises.

Since renminbi business was launched in Hong Kong in early 2004, all kinds of business have grown in a stable manner,with a smooth channel for fund settlement and orderly flowing back of renminbi.

At the end of November last year, 38 banks in Hong Kong had started to participate in renminbi business. The outstanding renminbi deposits in Hong Kong amounted to 22.8 billion yuan and the remittance to the Mainland from Hong Kong was 2.2 billion yuan.

The use of Mainland bank cards for consumption and cash withdrawal in Hong Kong reached 20.6 billion yuan, and the use of Hong Kong bank cards for consumption and cash withdrawal in the Mainland registered 750 million yuan. The use of Hong Kong cheques in the Mainland stood at 12.82 million yuan.