Hong Kong Banks Could Soon Take Yuan Deposits

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

19 September 2003

China's central bank chief Zhou Xioachuan was in Hong Hong Thursday to discuss the possibility of the territory's financial institutions formally accepting yuan deposits, though it appears that the establishment of a fully fledged yuan trading exchange is still some way off.

Under current proposals individuals will be able to open bank accounts in the city denominated in the Chinese currency, though Hong Kong banks will be unable to lend out any of their yuan deposits which will have to be cashed at China's central bank in return for other currency types.

However, analysts consider this an important first step towards Hong Kong becoming an offshore yuan trading centre. "The integration between the two places will be closer and closer, so that means that renminbi will co-circulate with the Hong Kong dollar in Hong Kong going forward," Chris Leung, senior economist at DBS Bank, told Channel News Asia. "Obviously, if that's the case, there's sort of a demand for renminbi storage with the banks. So it's a natural development, but the problem is there are many technicalities and contradictions in order for this to become a reality," Leung added.

Still, other experts feel that China's reluctance to liberalise its curency trading regulations and its reluctance to give up the dollar peg makes the prospect of a renminbi exchange very remote within the next five years as Beijing fears speculative demand for its under-valued currency.

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