This past Monday, Hong Kong and Mainland China agreed on a pilot program for the settlement of cross-border trade transactions using the renminbi. This is one step forward for allowing the renminbi to be used for international payments. The supplementary Memorandum of Cooperation, signed by Zhou Xiaocuan, Governor of the People’s Bank of China (PBoC), and Joseph Yam, Chief Executive of the Hong Kong Monetary Authority (HKMA) sets in motion the preparations for the implementation of a pilot project, arrangements for the cross-border settlement and clearing of renminbi funds, and amendments to current legal documents.
Using the renimbi is expected to bolster trade transactions between Hong Kong and China, as well as promote economic development, provide flexibility in their operations, and enhance Hong Kong’s financial system. John Tsang, Hong Kong’s Financial Secretary was quoted in a HKMA press release:
“Allowing trade transactions between the Mainland and Hong Kong to be settled in renminbi will not only strengthen the role of Hong Kong as a testing ground for the use of renminbi outside the Mainland, but is also conducive to trade activities and economic development in the two places.”
This move can be seen as one stage in a long-term goal to make the renminbi convertible into other currencies, and as an alternative to western currencies, especially the US dollar. The business community will need to take time to adjust. For now, however, they will start small and aim for its dominance in Asia. This is a lofty goal and will not happen over night of course. An article from the New York Times has hinted that China might want convertibility to coincide with the government’s goal to make Shanghai a financial center by 2020.
Photo by amy-wong.com
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