HK's status as international financial center remains unchanged, Eddie Yue says

The President of the Hong Kong Monetary Authority (HKMA), Eddie Yue, will begin his second five-year term starting tomorrow (Oct. 1).

He stated that the future work objectives are "seeking progress while maintaining stability" and "financial stability."

Regarding Hong Kong's international financial center ranking recently returning to third place, he noted that the scale of deposits and assets under management (AUM) in Hong Kong has increased over the past few years, reflecting that despite the challenges faced in recent years, Hong Kong's status as an international financial center has never faded.

Looking ahead to the next term, Yue indicated that the pandemic has impacted the development of connectivity with the Greater Bay Area (GBA). He hopes that in the coming years, there will be an acceleration in the flow of people, goods, data, and capital.

He also mentioned that Hong Kong's connectivity with the mainland is generally well-established, and the next focus will be on gradual expansion, particularly with significant room for some southbound projects.

"To achieve financial stability, it is essential to maintain strong resilience in both foreign exchange reserves and bank buffers. Additionally, effective monitoring and contingency planning are crucial, as well as maintaining market confidence."

Focusing on the RMB800 billion swap agreement

Yue stated that the main development areas in the future will still focus on seizing opportunities in the mainland, financial technology, and green finance, but with a shift in focus.

"In terms of renminbi internationalization, there will be further enhancement of renminbi liquidity in Hong Kong," he noted, "The HKMA is currently studying with banks how to better utilize the RMB800 billion swap agreement with the People's Bank of China. Furthermore, the HKMA will focus on expanding connectivity, especially concerning southbound bond trading."

Renminbi usage in Hong Kong triples in five years

Yue mentioned that the usage of the renminbi in Hong Kong has tripled over the past five years. According to the Real-Time Gross Settlement (RTGS) data, as of July 2024, the average daily transaction volume of the renminbi reached about 33.27 trillion, compared to 11 trillion in 2019, which was already more than the daily transaction volume of the Hong Kong dollar at that time.

He believes that as renminbi liquidity increases, the Hong Kong dollar will not be marginalized, nor will it affect the linked exchange rate system.

Yue expressed that the renminbi liquidity in the financial market relies heavily on the actual use of the renminbi in the real economy, meaning trade and investment demand must exist for the renminbi to flow into the capital market.

He cited an example where Saudi companies have a demand for renminbi to do business with the mainland, but Saudi banks may not have sufficient renminbi. The HKMA could connect Saudi banks with Hong Kong banks to loan renminbi to Saudi banks. Additionally, more can be done regarding renminbi products and infrastructure. For southbound bond trading, currently, investment in renminbi and Hong Kong dollar bonds can only be done through banks; if future expansion occurs, it could increase the potential demand for renminbi government bonds.

Yue stated that in the future, there will be enhanced risk management measures for connectivity, and the focus will be on exploring more uses of government bonds as collateral to activate investor inventories. In traditional finance, the HKMA will work with the government to develop wealth management services. The "Fintech 2025" strategy is about to expire, and Yue revealed that in the next phase, tokenization and artificial intelligence (AI) will be the major directions, including research on how banks can apply tokenized deposits and the use of AI in anti-money laundering procedures.

"Fed rate cuts will boost market investment and consumption willingness"

Regarding recent market conditions, Yue noted that although the U.S. interest rate cycle has turned towards a rate-cut cycle, it is still necessary to pay attention to the significant uncertainty in the economies of the mainland and the U.S., as well as potential geopolitical variables that may cause substantial fluctuations in the financial market.

However, rate cuts will boost market investment and consumption willingness, benefiting the global real economy. According to Yue, Hong Kong's interest rates will naturally follow the Fed's rate cuts and are hoped to help alleviate the burden on small and medium-sized enterprises, but he does not worry that the inflation rate in Hong Kong will rise due to the rate cuts.

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