Allowing HK banks to do RMB business will not effect exchange rate:PBOC

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Last updated at: (Beijing Time) Wednesday, November 19, 2003

Allowing HK banks to do RMB business will not effect exchange rate:PBOC

The decision by the People's Bank of China (PBOC) to allow Hong Kong banks to offer personal renminbi (RMB) yuan services will not affect the exchange rate of yuan, said a PBOC source Wednesday.

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The decision by the People's Bank of China (PBOC) to allow Hong Kong banks to offer personal renminbi (RMB) yuan services will not affect the exchange rate of yuan, said a PBOC source Wednesday.

The circulation of RMB yuan in Hong Kong still remains small compared to more than 20 trillion yuan of broad money (M2) in the Chinese mainland, the central bank spokesman said.

Instead, the exchange rate of yuan in Hong Kong is likely to bebound to that of the Chinese mainland with this service, he added.

Under the trial arrangement, banks licensed in Hong Kong will be to take deposits in yuan from Hong Kong residents. They will also be allowed to offer Hong Kong residents yuan-denominated credit cards for use in China, and let them remit yuan to accountsin the mainland.

However, loaning and interbank services will not be available, and the central bank will neither support Hong Kong banks to conduct businesses implicating large amounts of money and capital account transactions, the spokesman said.

The services to be offered will be confined to personal spending, especially to meet the needs of Hong Kong residents traveling to the mainland. The move is set to meet the special needs for settlement of the still unconvertible currency in Hong Kong, the spokesman said.

China will continue working on a convertible yuan in both current accounts and capital accounts, but it is a long-term goal,he stressed.

The central bank and Hong Kong Monetary Authority will select Hong Kong registered banks to handle settlement of yuan business in Hong Kong, and the People's Bank of China's Shenzhen Center branch will be appointed to handle settlement of Hong Kong yuan banking services on behalf of the central bank, according to the spokesman.

Hong Kong banks are free to decide whether to offer the yuan services, the spokesman noted, adding that they can sign agreements to do so if they will.

The new arrangement will facilitate increasing personnel exchange and tourism between Hong Kong and the mainland and is conducive to the stable opening of the financial sector in the Chinese mainland, he said.

Meanwhile, it will contribute to fighting against money laundering between the two places and cracking down on illegal money flows, he added.

According to the rules, the yuan settlement on a trial basis includes yuan deposits, Hong Kong dollars and yuan conversions, yuan remittances and yuan credit cards.

Each cash conversion will be limited to 6,000 yuan equivalent per person. Currency conversions through transfers between bank accounts are limited to 20,000 yuan (2,409 US dollars) a day per account holder.

Hong Kong residents can remit up to 50,000 per day per person through the central bank to authorized mainland banks.

In addition to allowing Hong Kong banks to issue yuan credit cards to Hong Kong residents, the rules will permit travelers fromthe mainland to use a mainland issued yuan-denominated bank card to pay for travel expenses such as shopping, food and lodging in Hong Kong.

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