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Chinese Premier Wen Jiabao in March expressed concern the dollar will weaken and is promoting greater use of the yuan in transactions with trade partners. Hong Kong’s Chief Executive Donald Tsang wants the city to be the first outside of the mainland to use local-currency settlement, part of a bid to become a yuan finance hub.
China announced the pilot project on April 8, nominating Shanghai and four cities in Guangdong, the southern province bordering Hong Kong. Companies currently have to convert yuan into dollars or other currencies to settle international trade. Wong said the limited program would start “anytime from now” in Hong Kong and that its extension depends on how smoothly it operates.
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“There’ll be some teething problems but once it gets going the level of yuan settlement will go up,” said Peter Wong, head of the Hong Kong unit of HSBC, the city’s biggest bank by deposits. “If you give it five years it’ll reach a few hundred billion yuan easily.” One hundred billion yuan is equivalent to $14.5 billion.
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ICBC’s Wong also said the program will start slowly. He estimates the pilot companies handle less than 25 percent of the trade and less than 50 percent of that will initially be conducted in yuan. He also said that China will only move gradually toward making the yuan fully convertible for investment, perhaps by 2020.
“China wants the yuan to gradually become freely convertible and play a more important role in worldwide trade and perhaps in worldwide financial markets,” Wong said. “But definitely convertibility is going to be at China’s own pace.”
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Chinese Premier Wen Jiabao in March expressed concern the dollar will weaken and is promoting greater use of the yuan in transactions with trade partners. Hong Kong’s Chief Executive Donald Tsang wants the city to be the first outside of the mainland to use local-currency settlement, part of a bid to become a yuan finance hub.
China announced the pilot project on April 8, nominating Shanghai and four cities in Guangdong, the southern province bordering Hong Kong. Companies currently have to convert yuan into dollars or other currencies to settle international trade. Wong said the limited program would start “anytime from now” in Hong Kong and that its extension depends on how smoothly it operates.
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“There’ll be some teething problems but once it gets going the level of yuan settlement will go up,” said Peter Wong, head of the Hong Kong unit of HSBC, the city’s biggest bank by deposits. “If you give it five years it’ll reach a few hundred billion yuan easily.” One hundred billion yuan is equivalent to $14.5 billion.
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ICBC’s Wong also said the program will start slowly. He estimates the pilot companies handle less than 25 percent of the trade and less than 50 percent of that will initially be conducted in yuan. He also said that China will only move gradually toward making the yuan fully convertible for investment, perhaps by 2020.
“China wants the yuan to gradually become freely convertible and play a more important role in worldwide trade and perhaps in worldwide financial markets,” Wong said. “But definitely convertibility is going to be at China’s own pace.”
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