 |
US Dollar Clearing System to Enhance HK's Status as International Financial Center
The full implementation of the US dollar clearing system Monday, December 18, in Hong Kong marks a milestone in the development of Hong Kong's financial infrastructure and will helps consolidate Hong Kong's position as an international financial center.
The system, commissioned by the Hong Kong Monetary Authority (HKMA) in March 2000, will enable local financial institutions to settle US dollar transactions real time in Hong Kong, instead ofwaiting 12 hours for the settlement in New York.
"A local US dollar clearing system will bring with it the advantage of speed, convenience and efficiency," said Joseph Yam, chief executive of the HKMA, recently, adding that the state-of-art US dollar clearing system will boost Hong Kong's competitiveness as an international financial center.
The US dollar is the currency in which most world trade in merchandise and financial products is denominated.
"Because of Hong Kong's role as an international financial center, and the fact that our own currency is linked to the US dollar, there is extensive holding of US dollars and a considerable trade in US dollar-denominated assets," Yam said. "
The existing market demand within Hong Kong for a US dollar clearing system is a persuasive enough argument for its introduction."
The launch of the final phase of Hong Kong's US dollar payment system Monday will offer paper check clearing and delivery versus payment (DvP) settlement of debt securities denominated in US dollars in Hong Kong.
The U.S. dollar payment system will significantly lower costs and reduce settlement risks for businesses throughout the region, Yam said, noting that the system is part of the HKMA's continuing program of building the financial infrastructure under its strategy for developing Hong Kong as the financial hub of Asia.
He said Hong Kong sees important opportunities in the three world trends of trade liberalization, globalization and technological advance in its development into a logistics, financial and digital hub.
Trade liberalization, which was most dramatically illustrated by China's prospective entry into the World Trade Organization, would continue to bring enormous opportunities for Hong Kong to further enlarge and deepen its intermediary role, especially in financial, technical and professional services, between Chinese enterprises and overseas investors, he noted.
Yam said the US dollar check clearing services will provide greater convenience to retail customers making US dollar payments.
Institutions and individuals can open US dollar current accounts and make better use of their US dollar deposits, which account for one-quarter of total bank deposits in the Hong Kong Special Administrative Region.
The US dollar checks that are drawn on banks in Hong Kong will be settled on the day following presentation of the checks, compared with the settlement period of approximately two weeks for US dollar checks drawn upon banks in the United States.
The change will be particularly noticeable in the insurance industry as 90 percent of insurance policies bought by Hong Kong residents are in US dollars. Bond traders will also receive faster settlement as the HKMA links the US dollar clearing system with the CMU, the local debt securities custodian run by the HKMA.
"The HKMA's US dollar clearing system is the first of its kind in Asia," said Esmond Lee, head of the HKMA market systems division. "This will attract other Asian investors to trade in Hong Kong."
Before the introduction of the system in August, local and other Asian traders of the US currency or US dollar denominated bonds and stocks had to settle the deals in the United States. Due to the time difference, it meant a 12-hour wait for settlement.
The US dollar clearing system also eliminates the settlement risk that arises when a transaction is spread across the different time zones, he added.
The system was launched in three phases. The first phase, covering the US dollar real time gross settlement system, and the second phase, facilitating payment versus payment settlement for foreign exchange transactions between the US dollar and the Hong Kong dollar, were introduced on August 21 and September 25 this year, respectively.
The Hong Kong and Shanghai Banking Corporation Limited (HSBC) was appointed as the settlement institution.
"The US dollar clearing system has been operating very smoothly and the response from local and overseas banks has been enthusiastic. I have every reason to believe that the last phase will be equally successful," said David Eldon, chairman of the HSBC.
In the past three months, an average of 2,000 transactions, involving some 3 billion US dollars, were settled daily, according to Andrew Long, HSBC head of payments and cash management for the Asia-Pacific region. Forex transactions settled by the system stood at 1.5 billion US dollars a day.
"This is an indication that many banks prefer to use the new system to achieve faster settlement," said Long.
Currently, the U.S. dollar clearing system has 62 banks as direct participants and 59 banks as indirect participants, including 22 overseas lenders.
In This Section
|