Hong Kong and China have loosened restrictions on yuan banking in a move that's expected to prompt banks in the Asian finance center to offer a wider range of financial products in the national currency.
Hong Kong, a former British colony, still maintains its own currency, the Hong Kong dollar, but it started to offer banking services in the yuan, also known as the renminbi, in 2003. The new deal signed between the People's Bank of China and the Hong Kong Monetary Authority expands the services from individual to corporate clients.
Under the new guidelines, companies can transfer yuan funds between different accounts for any purpose — not just trade settlement. Individual clients can also transfer funds from their accounts without restrictions.
The loosened rules are expected to spawn new yuan-denominated financial products, such as funds, timed deposits, bonds and insurance policies, Hong Kong's Ming Pao Daily News reported on Tuesday.
"I expect that many more types of financial intermediary activities denominated in the renminbi will be introduced in the market, helping Hong Kong's renminbi business platform leap to new heights," Hong Kong Monetary Authority Chief Executive Norman Chan said at the signing ceremony late Monday.
The chief executive of the Hong Kong branch of Singaporean bank DBS Group Holdings said the new rules may lead to further increases in interest rates for yuan deposits as competition between local banks increases.
"The competition has already existed for some time. The interest rates have already risen. Will they keep on rising? It depends on the circumstances. But the baseline is already higher," Amy Yip told reporters on Tuesday.
In other recent efforts to promote the use of the yuan internationally, the Chinese government last month expanded a trial program to allow settlement of trade transactions in yuan to include the rest of the world.
The program was originally limited to trade with the member states of the Association of Southeast Asian Nations, Hong Kong and Macau.
Traditionally a middleman between mainland Chinese manufacturers and Western markets, Hong Kong has been a major player in the program, accounting for about 75 percent of the 70.6 billion in yuan-denominated ($10.4 billion) business transactions in the first six months of the year, People's Bank of China Deputy Governor Hu Xiaolian said at the signing ceremony.
"We can see the development of the yuan-denominated trade settlement business in Hong Kong has achieved good results," Hu said.
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