Hong Kong starts 10 billion yuan currency swap

14:47, November 05, 2010      

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Recently the Hong Kong Monetary Authority (HKMA) issued a notice saying that the Bank of China (Hong Kong) has launched currency swap agreements with the People's Bank of China, China's central bank.

HKMA spokesman told the First Financial Daily the currency swap involves more than 10 billion yuan, and as of yesterday, no bank that participates in RMB business has contacted the HKMA for the RMB position.

Hong Kong-based Hang Seng Bank Vice Chair Margaret Leung told the Hong Kong media the bank will draw RMB through its branches on the Chinese mainland, and she believes this would meet customer requirements.

In January 2009, Hong Kong Monetary Authority signed a three-year currency swap agreement with the central bank with liquidity credits of up to 200 billion yuan. It is reported that this is the first time the currency swap has been launched since the HKMA signed the agreement.

In order to promote the circulation of RMB in offshore markets, the Chinese government encourages companies to use the RMB for settlement of cross-border trade, so there is a substantial increase in demand for RMB trade settlement.

On July 19, the Chinese government signed an agreement with Hong Kong to further relax the restrictions on RMB transactions in Hong Kong. The agreement allows local banks in Hong Kong to introduce more RMB-denominated investment products, such as insurance, securities and fund products.

Market expectations of a stronger yuan also boost the market demand for the yuan. In mid-June China ended a two-year peg to the U.S. dollar's exchange rate policy. So far the yuan has risen about 2 percent against the U.S. dollar. The offshore forward market conditions also showed that in the next 12 months, the yuan will appreciate by 3 percent to 4 percent.

According to the Bloomberg report, trade settlement in the Chinese yuan in the third quarter almost tripled from the previous period as overseas demand for conducting transactions in the currency surged.

By Huang Beibei, People's Daily Online


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