The current restriction placed on the renminbi (RMB) exchange of no more than 20,000 yuan per person per day in Hong Kong should be relaxed, executive vice president of the China Society for Finance and Banking Joseph Yam Chi-kwong said Monday.

Yam also suggested in a forum that current restrictions placed on enterprises and investors in opening RMB accounts locally should also be dropped in order to boost the development of the city as a major offshore RMB financial center.

Yam was the chief executive of the Hong Kong Monetary Authority (HKMA), the city's de facto central bank, before his retirement in 2009. Since then, he has taken up an appointment as the executive vice president of the China Society for Finance and Banking, a think-tank unit under the People's Bank of China (PBoC).

Yam's Monday comments came after the HKMA said last Friday it plans to ease, in July, existing restrictions on yuan capital transfer between local banks after securing approval from the PBoC.

Yam said he also hopes that the flexibility of RMB capital flows between Hong Kong and the mainland can be enhanced, including the relaxation of RMB remittances by local residents, expanding RMB remittances for non-Hong Kong residents, as well as allowing local and overseas enterprises to conduct RMB remittances. All these measures can help boost the development of the local RMB bond and deposit markets, he said.

In the long run, the Hong Kong offshore RMB market should develop linkage mechanisms with the mainland RMB market. Such mechanisms can facilitate the process through which clearing banks open accounts in the PBoC so that the PBoC can conduct monitoring and risk management, as well as provide flexibility for the currency supply.

Yam is optimistic that the city can develop itself into an offshore RMB financial center, as there is ample room for growth in terms of yuan businesses.

"The current RMB business volumes in the city are still very small. Current RMB deposits in the city only amount to 80 billion yuan, which represents only 0.1 percent of total RMB deposits on the mainland. The amount of outstanding RMB bonds in Hong Kong is also small, totaling only 30 billion yuan," Yam said.

The PBoC said Saturday that it will proceed with the reforms on the yuan exchange rate regime to further enhance the flexibility of the RMB exchange rate.

The financial markets' interpretation is that the mainland authority is reinstalling flexibility in the RMB exchange rate system. However, Yam does not think that the PBoC move will lead to a one-off appreciation in the yuan.

The yuan doesn't need a one-off appreciation, he said, adding that a daily trading band of 0.5 percent is enough. As for market volatility,he forecasts only "slight fluctuations" in the yuan exchange rate in the coming days.

China Daily

(HK Edition 06/22/2010 page3)