Peter Pang: Promoting and maintaining financial stability in Asia through cross-border co-operation Remarks by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong Monetary Authority – Bank of Thailand Joint Press Conference on the launch of US dollar – Thai Baht PvP link, Hong Kong, 15 July 2013. *  *  *  Deputy Governor, ladies and gentlemen, I would like to thank the Bank of Thailand for co-hosting this press conference with the Hong Kong Monetary Authority (HKMA). It is my great pleasure to join Deputy Governor Mr. Krirk Vanikkul to announce the implementation of the payment-versus-payment (PvP) link between the Thai Baht Real Time Gross Settlement (RTGS) system in Thailand and the US dollar RTGS system in Hong Kong. This PvP link sets another excellent example of central bank cooperation to provide solutions to enhance regional financial stability and to meet market needs. In particular, it will make a significant contribution to addressing the current principal risk in the USD-Thai Baht foreign exchange (FX) transactions that arises from buyers of USD paying Thai Baht in Asian time ahead of receiving US dollar in US time the next day. For technical people in the payment field, this is often referred to as the “Herstatt” risk which brought down the Herstatt Bank in Germany in 1974.
The implementation of this PvP link comes at an opportune time in view of the need to better manage the increased settlement risk due to the rapid growth in FX transactions and to assist financial institutions, in particular banks, to comply with the standards recommended by the international standard setting bodies. Driving the rapid growth in FX activities of the regional currencies has been Asia’s expanding share in global trade and investment flows. In the past decade, trade between Asia and the rest of the world had grown tremendously. Asian economies’ export of goods and services, as a percentage of the world total, increased significantly from 29% in 2002 to 38% in 2012, amounting to $ trillion. Asian economies’ total imports also increased significantly in the same period from 32% to 47%. Meanwhile, the investment flows between Asia and other regions have also intensified. Supported by the robust trade performance and increasing capital flows, activities in the regional FX market have increased significantly. According to the latest triennial survey on global FX market activity of the Bank for International Settlements (BIS), the average daily turnover in FX transactions involving Asian currencies increased by 172% from $ billion equivalent in 2001 to $ billion equivalent in 2010. BIS central bankers’ speeches  1  Against this backdrop of rapid growth in global FX activities, the Basel Committee on Banking Supervision issued an updated guidance on management of FX risk in February 2013.