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Hong Kong Introduces RMB Liquidity Measures

by Mary Swire, Lowtax.net, Hong Kong
05 November, 2014

The Hong Kong Monetary Authority (HKMA) has designated seven banks as Primary Liquidity Providers (PLPs) for the renminbi market (RMB) in Hong Kong and announced the provision of intraday liquidity – two moves that it said would reinforce the city's status as the global hub for offshore business in the currency.

The PLPs, selected through a competitive process and designated for a two-year term with effect from October 27, 2014, are the Bank of China (Hong Kong), BNP Paribas, China Construction Bank (Asia), Citibank N.A., Hongkong & Shanghai Banking Corporation, Industrial & Commercial Bank of China (Asia), and Standard Chartered Bank (Hong Kong).

The designated PLPs have pledged to expand their market-making activities in Hong Kong for various Hong Kong RMB instruments and use the Hong Kong platform in promoting their global offshore RMB business. In return, the HKMA provides a dedicated repo facility of RMB2bn (USD327m) to each of the PLPs so as to facilitate more efficient liquidity management.

"The launch of the PLP initiative is an important step for further enhancing the infrastructure for the offshore RMB market in Hong Kong," Norman Chan, HKMA's Chief Executive, said. "The PLPs will help make the RMB products in Hong Kong more liquid and make more use of Hong Kong to support their RMB business worldwide."

The HKMA also announced the provision of RMB intraday liquidity to Authorized Institutions (AIs) participating in RMB business in Hong Kong with effect from November 10, 2014.

In light of the increased volume of payments alongside the growth of the offshore RMB market, the HKMA will thereby provide intraday RMB funds of up to RMB10bn to assist AIs in managing their RMB liquidity and to promote efficient payment flows in Hong Kong.

Participating AIs may initiate a sale and repurchase transaction with the HKMA to obtain intraday RMB funds. The HKMA will charge a fee, based on the actual time of usage, with reference to the prevailing overnight interest rate.

This should also provide banks with greater flexibility in managing their payment flows upon the launch of the Shanghai-Hong Kong Stock Connect in the future.

"The volume of RMB payments has witnessed phenomenal growth in the past few years," Chan added. "In just the last 12 months the average daily transaction volume in the Real Time Gross Settlement system increased by 90 percent to RMB840bn. The provision of intraday funding is a major step in assisting banks in Hong Kong to manage the increase in payment flows."

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