Having said that, policy makers and regulators do have a crucial role to play in respect of Policy Headroom and Infrastructure, which are the first two elements of “PIPs”. Let me elaborate further. 7. Clearly there could not be any offshore RMB markets if the Mainland did not make a move in 2009 to change its policy of not allowing the use of RMB in cross-border trade and other transactions. But of course, the Mainland authorities were and still are understandably wanting to open up the capital account on an incremental basis, taking one step at a time. When one looks back at the last five years, the scope and breadth of the cross-border flow of RMB have been progressively and steadily expanded. While we have come a long way from 2009 and there have been many policy changes in this period that help the offshore market to move forward, I would like to highlight four major milestones of policy headroom expansion that made it possible for the incremental development of RMB markets offshore. The first one is the RMB trade settlement pilot scheme I mentioned at the beginning. Then comes the relaxation in the use of RMB for foreign direct investments into the Mainland and outward direct investments by Mainland corporates starting in 2011. Then channels for RMB portfolio investment flows have also been created, such as the RMB Qualified Foreign Institutional Investors (RQFII) scheme, so that offshore investors can invest in the onshore bond and equity markets.
As this new era of RMB internationalisation has just begun, we still have a long, long way to go as the offshore RMB markets continue to grow and mature, while the capital account controls in Mainland China are being gradually relaxed or lifted. In the early stages of this new era, the primary task of Hong Kong is to develop the CNH market and at the same time work with other financial centres such as Sydney, London or Paris to grow the pie, leading to win-win outcomes. As we move into the more mature stages of the internationalisation of RMB, the available policy headroom should be quite ample for the markets to flourish. At that time, the 2nd and 3rd elements of PIPs, i.e. Infrastructure and People/Products, would matter a great deal more if Hong Kong wishes to retain its competitive edge over the others. It will be up to our industry, financial firms and market practitioners to out compete the other centres in terms of product innovation and distribution of various financial products and services that best serve the needs of their clients. I am sure that the TMA, with the support of its members and the financial industry, will continue to play a leading role in developing the professionalism of the practitioners and in facilitating product innovation. Thank you. BIS central bankers’ speeches  3  4  BIS central bankers’ speeches  BIS central bankers’ speeches  5  6  BIS central bankers’ speeches