Economy

Int'l monetary system needs yuan as 'third leg'

(Xinhua)
Updated: 2010-07-05 09:39

HONG KONG'S ROLE

Yam said the internationalization of the renminbi can be organized through the development of an off-shore renminbi market that operates under the open international market environment, while the off-shore market will provide important signals to guide full liberalization of the capital account in the on-shore market.

Hong Kong, as an international financial hub, could play big in the internationalization of the renminbi, said Yam, who helped start off-shore renminbi-denominated transactions in Hong Kong.

In a visit to Beijing 2001, Yam made a proposal to Chinese central government officials that there was a need for a proper channel for the increasing amount of renminbi banknotes circulating off-shore, particularly in Hong Kong, to be returned to the mainland.

In 2004, after a series of discussions with the central bank, HK banks began to take renminbi deposits from local residents, among other modest banking activities, marking the beginning of a renminbi off-shore market in Hong Kong.

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Yam, however, was far from satisfied with the development of HK 's renminbi off-shore market. He said the volume of renminbi business in Hong Kong was still relatively small and there are not many renminbi assets that the settlement bank can buy through the creation of renminbi liabilities.

Figures released by the Hong Kong Monetary Authority indicated the city's deposits of the renminbi stood at 84.7 billion yuan ($12. 5 billion) at the end of May this year. Renminbi bonds in Hong Kong amounted to some 30 billion yuan.

He suggested more aggressive steps should be taken so as to expand renminbi business in Hong Kong, as long as a proper working relationship between the on-shore and off-shore renminbi markets was set up to serve the development and risk management needs.

The 62-year-old veteran thus gave some advice for further development of renminbi business in Hong Kong -- setting up an architecture that should enable the on-shore impacts of off-shore activities to be monitored closely, allowing HK to manage the renminbi business in its own ways as long as the risks are controllable, and enhancing the mobility of renminbi between the two markets.