Wall Street Banks Eligible for Expanded RQFII, PBOC’s Li Says

American and European financial companies with units in Hong Kong can use yuan raised offshore to invest in China’s capital markets as part of a recently expanded program, according to the central bank.

“Financial institutions in Hong Kong, no matter Chinese or Hong Kong, or American or European, can now participate in RQFII” in a move aimed at supporting the offshore yuan business in Hong Kong, Li Bo, head of the second monetary policy department at the People’s Bank of China, said during a lecture at Shue Yan University in the city today. “There are now no limitations.”

The China Securities Regulatory Commission opened its Renminbi Qualified Institutional Investor Program last week to financial institutions that have “major business operations” in Hong Kong. Before the expansion, only Chinese brokerages and asset managers were allowed to participate.

London-based Standard Chartered Plc, which got about 18 percent of its 2012 revenue from Hong Kong, is “very interested” in taking part in the RQFII program, Benjamin Hung, chief executive officer for the city, said on March 7.

Li said China hopes the yuan can be part of the International Monetary Fund’s Special Drawing Rights, an international reserve asset created in 1969 that can be exchanged for freely traded currencies.

Payments System

The PBOC doesn’t set targets for the yuan’s internationalization, choosing instead to “relax regulations and give the choice to the market,” Li said. China is developing an international payments system for cross-border yuan trade settlement because more countries are utilizing their swap agreements with the PBOC to support companies that conduct trade in the Chinese currency, he said.

China’s efforts to take its currency global and make it convertible have drawn lots of interest overseas. London is competing with Paris and Zurich to become the center for yuan trading in Europe. After a meeting last month, the Bank of England said it has the inside edge to be the first Group of Seven central bank to sign a currency-swap agreement with the PBOC.

The Qianhai district of Shenzhen, a city that borders Hong Kong, was last year chosen as the testing ground for yuan convertibility, with 15 banks based in Hong Kong providing about 2 billion yuan ($322 million) to companies this January.

The PBOC isn’t worried that cross-border lending will drain Hong Kong’s yuan pool, Li said, adding that the pilot program will raise the returns on offshore yuan and boost holdings of the Chinese currency outside the nation.

The yuan’s exchange rate is near its “equilibrium” level as China’s trade surplus as a ratio of gross domestic product has declined, Li said. “There won’t be significant appreciation or depreciation,” he said, adding that the central bank will continue to increase the flexibility of the exchange rate.

The yuan gained 0.03 percent to 6.2141 per dollar as of 4:27 p.m. in Shanghai. Twelve-month non-deliverable forwards in Hong Kong rose 0.13 percent to 6.2993 per dollar, a seventh straight gain that marks the longest winning streak since 2010, according to data compiled by Bloomberg.

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