Hong Kong Banks Begin Taking Yuan Deposits

by Mary Swire, Tax-News.com, Hong Kong

27 February 2004

The eagerly anticipated move to liberalise trading and exchange of the yuan in Hong Kong took its first step forward this week after the city’s banks were given the go-ahead to begin taking deposits in the Chinese currency.

It is estimated that there is the equivalent of $8 billion in yuan notes floating around in the city, and Hong Kong banks are using a variety of incentives to potential customers in a bid to suck in some of this (previously illegal) surplus cash. They will be helped by the fact that interest rates on yuan deposits will be higher than those on the HK dollar, reflecting the rate of interest on the mainland.

Some of the special offers being touted by Hong Kong banks include higher interest rates and preferential exchange rates for those taking out savings accounts in the yuan. Bank of East Asia, Hong Kong's fourth-largest publicly owned lender has also decided to waive fees on remittance services, and DBS Bank Hong Kong is even giving away a free tourist guide to Shanghai alongside its special exchange rate offer.

Under the newly relaxed rules, banks will be able to exchange up to 20,000 yuan a day ($2,400) per individual provided the transaction is conducted through a deposit account. Meanwhile, cash transactions will be limited to 6,000 yuan, and individuals may remit up to 50,000 yuan per day back to their accounts in China.

However, the changes are far from representing a fully liberalised exchange system, and tight restrictions will remain on the Chinese currency in the city. For instance, the new rules will only allow Hong Kong residents and those with a Hong Kong ID card to make yuan bank deposits, whilst companies will remain barred from banking the currency.

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