However, Hong Kong does enjoy the first mover advantage over the others in a number of ways. Over the years, the HKMA has built up a very good working relationship with the Mainland authorities. We have accumulated a wealth of operational and regulatory experience in RMB business. We have also developed the most advanced financial infrastructure for RMB transactions with cross-border links with the Mainland. These are some of our unique strengths, and it is not easy for others to replicate them, at least in the short term.
With all these developments, where should we go next? At the policy level, I believe it would be important to build an effective two-way channel to increase interaction between the RMB onshore and offshore markets.
A potential area that can be explored is to promote the use of RMB for conducting cross- border real economic activities such as FDI and ODI. Given the significant share of Hong Kong in Mainland’s FDI and ODI, building such a two-way channel will also be conducive to the sustainable development of the offshore RMB market in Hong Kong. On this, I am glad to see that the People’s Bank of China has, as I briefly mentioned a few minutes ago, recently launched a pilot scheme, under which ODIs by Mainland Chinese enterprises are allowed to be settled in RMB upon approval of relevant Mainland authorities. As for FDI in RMB, there have already been some pilot cases (such as McDonald’s) and it is hoped that the relevant arrangement can be formalised in due course.
Apart from FDI and ODI, we have been in close communication with the Mainland authorities to explore other possible channels. In particular, we welcome the announcement of the People’s Bank of China in August last year regarding the introduction of a pilot scheme allowing eligible entities in Hong Kong to make use of their RMB funds to invest in the Mainland’s interbank bond market. The launch of this scheme has opened up a channel for offshore RMB funds to invest on the Mainland. Market responses to this scheme have been very positive.
As I mentioned at the beginning, Mainland China is now the second largest economy and the single largest source of new economic activities in the world. The increasing use of RMB in the international stage – although that will be a gradual process – will have profound implications on the global financial landscape in the years to come.
So, the trends are very clear. Now is a critical time for market players, including banks, financial institutions and asset management companies, to prepare themselves well for the unprecedented opportunities presented by China.
BIS central bankers’ speeches