The Hong Kong Monetary Authority (HKMA) and the local banking sector will explore collaboration with their counterparts in the UAE and Saudi Arabia, the two major economic power houses in the Arab world, when high-level delegations from these countries will visit the city later this year separately.
Disclosing this at the annual Treasury Markets Summit, organised by Treasury Markets Association (TMA), an industry body that promotes the treasury and foreign exchange markets in the city, in Hong Kong on Monday, HKMA CEO Eddie Yue Wai-man hoped that the two visits will pave the way for the financial sector to introduce services and platforms to serve the needs of these economies in banking and finance, including various types of yuan services.
However, he did not provide a timeline or further details about the delegation visits.
“We have got an increasing number of economies, especially those from the Middle East and (Southeast Asia), who want to use yuan to settle their trade with China,” Yue told the participants at the summit.
“We will be receiving delegations from the UAE and Saudi Arabia later in the year to explore collaborations. We are working with banks to try to bring more participation from these two markets,” he said.
Roadshows in Middle East
According to South China Morning Post, an English daily in Hong Kong, Yue, as well as other Hong Kong government officials including Chief Executive John Lee Ka-chiu and Financial Secretary Paul Chan Mo-po, conducted several roadshows in the Middle East earlier this year to promote the role of Hong Kong as an offshore yuan trading centre.
Yue called on banks to assist in efforts to promote the city’s capabilities as an international financial centre and offshore yuan hub.
“The banking industry can play a really big role in our overseas promotion events,” he said. “We are happy to provide policy support for the banks to provide the service to their clients and their promotion to the economy. This is extremely important,” he added.
The yuan started its journey towards international use for trade settlement in 2009. In 2022 the currency, also known as the renminbi, was the fifth most-traded currency, up from eighth place in 2019, according to the Bank for International Settlements’ (BIS) Triennial Central Bank Survey, released in February.
The yuan has surpassed the Canadian dollar, Australian dollar, and Swiss Franc in the latest currency rankings, in which the BIS collected data from 1,200 banks and dealers in 52 markets.
Yuan trades represented 7% of all trades in 2022, compared with 4% in 2019 and less than 1% in 2010, BIS data showed.
Hong Kong’s Critical Role
Hong Kong is playing an important role in the internationalisation of the yuan, according to several bankers speaking during a panel discussion at the same summit.
“Hong Kong has over 900 billion in yuan deposits, which is much bigger than Taiwan, Singapore and the UK,” said John Tan, managing director and Asia head of financial markets at Standard Chartered Bank.
Hong Kong conducts the largest sum of offshore yuan trade settlements, Tan said, while the many connect schemes that allow cross-border trading between mainland and international investors in stocks, bonds, and ETFs (exchange traded funds) have strengthened the city’s role as an offshore yuan centre.
Beijing introduced the stock connect link between Hong Kong and Shanghai in 2014, and added the Shenzhen leg in 2016, followed by the bond connect, wealth-management connect, ETF connect, and swap connect mechanisms.
“All these things combined together were really big movements in the markets to help us move forward,” Tan said.
Justin Chan, an adviser to the co-CEOs for Asia-Pacific at HSBC, David Liao and Surendra Rosha, said the yuan has been very successful as a trade settlement currency but does not yet find wide use as an investment currency or reserve currency.
But the yuan will further develop in these areas when more companies want to issue bonds in yuan, he said, adding that Hong Kong’s active capital markets are tailor-made for these activities, the report added.