Hong Kong Proposes Removing Yuan-Conversion Limit on Locals

The Hong Kong Monetary Authority has proposed that Chinese authorities remove a 20,000 yuan ($3,280) daily currency-conversion limit on the city’s permanent residents, according to Chief Executive Norman Chan.

“The People’s Bank of China said this is feasible and it will pro-actively consider it,” Chan told reporters in Beijing yesterday. “That’ll make it easier for banks to sell wealth-management products denominated in yuan.”

Hong Kong allowed non-residents to purchase an unlimited amount of offshore yuan in August 2012. The city maintained the 20,000-yuan limit for permanent residents who can only buy onshore yuan, and an 80,000-yuan per day restriction on transfers to the mainland.

The city’s daily conversion limit is a hindrance as Hong Kong faces competition from cities including London and Singapore that are seeking a greater role in offshore yuan trading. The daily value of yuan trading in London now stands at around $5 billion, double the volume in 2012, U.K. Chancellor of the Exchequer George Osborne said this week at a briefing in Beijing, citing data from HSBC Holdings Plc.

Taiwan’s central bank is studying measures to bolster its yuan-related wealth-management business, including raising its 20,000 yuan daily limit on individuals buying or selling the Chinese currency, a government official said last month.

‘Enough Depth’

Yuan deposits in Hong Kong rose 28 percent from a year earlier to a record 709.5 billion yuan in August, HKMA data shows. The daily trading volume of the offshore yuan’s spot and forward markets is $12 billion to $13 billion, according to HSBC estimates.

The HKMA is proposing that local residents be able to buy offshore yuan, Chan said. Hong Kong’s yuan market has “enough depth” to accommodate conversion demand from residents, he said.

“The intention is to build up Hong Kong’s yuan pool and improve offshore yuan liquidity,” said Crystal Zhao, a Hong Kong-based fixed-income analyst at HSBC. “Hong Kong’s yuan pool has grown a lot but going forward, the driver for further improvement in liquidity might have slowed. To some extent, this is going to help boost the liquidity but we might not see a surge in retail deposits so soon.”

The PBOC is also accelerating the approval of Dim Sum bond issuance applications by domestic financial institutions, Chan said.

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