Hong Kong is the first and so far the only place outside the Mainland that has developed a RMB bond market. So far, 19 RMB bonds have been launched in Hong Kong with a total issuance size of over 50 billion yuan. The issuer base was expanded from only Mainland Chinese banks at the start, to Mainland subsidiaries of Hong Kong banks and China’s Ministry of Finance in 2009, and further to Hong Kong corporations and international institutions like McDonald’s and the Asian Development Bank this year following an important elucidation regarding the operation of RMB business in Hong Kong in February. 20. The net effect is that any issuers, including foreign corporations and multilateral organisations, are now free to issue RMB bonds in Hong Kong, just as they can issue bonds in any other currencies. Of course, if the proceeds are to be used on the Mainland, the moving of funds into Mainland China will have to meet the requirements there. By the same token, banks can now also offer RMB trade finance, corporate loans, syndicated loans and project finance to their clients in accordance with Hong Kong’s existing banking practices. 21. The latest developments have provided more flexibility and larger scope for the further development of RMB financing activities in Hong Kong. As the pool of offshore RMB funds in Hong Kong continues to grow, there will be huge opportunities for financial institutions to take part in RMB financing as well as in the origination, distribution, investment and trading of RMB bonds. 22.
Let’s take a look at the UK’s experience in developing the Eurodollar market. Despite the sheer size of the Eurodollar market in the UK, it has not undermined the role of the British Pound in serving the domestic economy. Likewise, in the eyes of local investors in Hong Kong, RMB mainly represents an attractive investment choice in addition to other foreign currencies, and does not create any problems at all to the Hong Kong dollar’s role as a locally-used currency. 34. What about the idea of pegging the Hong Kong dollar to the RMB instead of the US dollar? In thinking about this question, it is important to recognise that the RMB can only be an anchor currency when it meets a number of important fundamental conditions. 35. First, there should be a high degree of synchronisation between the economic cycles in Hong Kong and the Mainland. At present, Hong Kong’s economic cycle is more affected by the flows of trade between the Mainland and the advanced economies, rather than domestic demand of the Mainland. And the business cycle synchronisation between Hong Kong and the US continues to be higher than that between Hong Kong and the Mainland. Secondly, to make it technically feasible for the RMB to be a reserve currency, the RMB must be freely convertible, the capital account control on the Mainland removed and all currencies allowed to flow freely.