I anticipate this could play out in three dimensions: •  First, there will be a need to facilitate the further development of the RMB banking market so that offshore RMB liquidity can be efficiently allocated, which would enable banks in need of RMB to easily obtain it from banks with surplus liquidity. We can already see the market moving in this direction as banks begin to diversify and expand their RMB assets progressively. Meanwhile, the introduction of a crossborder collateral management arrangement opens an efficient channel for financial institutions to widen their liquidity sources and obtain offshore RMB liquidity from Hong Kong, using even non-RMB papers for repos. •  Second, there will also be a need to facilitate the development of RMB capital markets. On this front, Hong Kong’s dim sum bond market has shown encouraging development. Already, multilateral companies and international financial institutions such as the World Bank and the Asian Development Bank have tapped the dim sum bond market. For the market to develop further, there will be a need to continue to broaden the participation of both issuers and investors. Additionally, the tenor and variety of debt instruments will need to increase to meet the financing requirements of different issuers while satisfying the appetites of different investors. There has been repeated RMB sovereign bond issuance by the Ministry of Finance and more regular issuance in due course will help to gradually build a benchmark yield curve.
Intermediation among non-residents The third set of characteristics involves the provision of intermediation among non-residents. The Eurodollar market provides efficient intermediation among non-residents. For example, it allows for Eurodollar bonds to be issued by non-US entities and bought by non-US investors. To an increasing extent, the offshore RMB market is functioning as a platform for RMB financial activities conducted by non-residents. The pool of RMB deposits in Hong Kong, being deposits of mainly non-Mainland individuals and corporates, is exceeding RMB 800 billion. Adding to that is the dim sum bond market, which has a size of RMB 260 billion at present. Offshore RMB bonds are being issued by Mainland Chinese entities as well as multinationals, and they are being bought by offshore investors. At the same time, banks in Hong Kong are extending RMB loans to customers, with the outstanding amount of such RMB loans currently stands at close to RMB90 billion. 2  BIS central bankers’ speeches  As the market deepens and a greater variety of RMB products become available offshore, we will eventually see more RMB intermediation within the offshore markets, especially as non-Chinese residents become willing borrowers of RMB. However, for that to happen, work on different fronts needs to be pursued and market efficiency furthered through innovative solutions and active participation by different market players.