China doubles currency swap agreement with Hong Kong
November 28, 2011 Category Finance, Weekly
China has doubled its currency swap arrangement with Hong Kong to CNY400 billion. It gives Hong Kong greater access to the People’s Bank of China’s yuan pool and will encourage more businesses to use the yuan as an invoicing currency. HKMA Chief Executive Norman Chan said the new agreement “is crucial in helping us to provide liquidity, when necessary, to maintain the stability of the offshore renminbi market in Hong Kong”. More than 9% of China’s total trade has been settled in yuan this year, up from just 0.7% a year ago. Of all China’s yuan-based trade in the first half of this year, 84% was carried out by Hong Kong banks, up from 73% over the whole of 2010. The Hong Kong government has listed developing offshore yuan as a strategic direction for the city’s future economy. The explosion in yuan trade has boosted yuan deposits in Hong Kong to CNY622 billion as of the end of September, totaling more than 10% of total deposits, up from around 1% in January last year, HKMA data shows. “The importance of the yuan business to Hong Kong has been limited by the currency’s convertibility,” said Zhao Xijun, Economist at Renmin University in Beijing. “The expanded amount of yuan available in Hong Kong will make it easier to get hold of and use the currency.”
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