The monetary impact of a recent surge in renminbi deposits in Hong Kong is limited for either the southern Chinese special administrative region or the mainland, the chief of Hong Kong Monetary Authority has said.
"The increase in renminbi deposits is a natural market response and has limited monetary implications for Hong Kong and the mainland," Joseph Yam said in his weekly column posted late Thursday on the website of the Monetary Authority.
The renminbi deposits in Hong Kong amounted to 47.8 billion yuan by the end of February, representing an increase of more than 18 percent over the previous month and 92 percent over a year earlier.
The March figures were not yet available but Yam said he was "quite sure that they will show equally rapid increases."
Refuting recent comments on the implications of the development for the status of the Hong Kong dollar and monetary management on the mainland, Yam said the February figure represented only 0.8 percent of the total deposits in Hong Kong.
"The rapid rate of increase reflects the small base. In terms of proportion, it clearly does not threaten the status of the Hong Kong dollar, as some have suggested," he said.
Yam said three factors accounted for the rapid increase, naming investors looking for alternative exits for their savings amid bearish sentiment on the stock market, expectations for the yuan to further appreciate, and the lower interest rates of the Hong Kong dollar than that of yuan deposits in neighboring mainland banks.
The investment choice, based on exchange rate and interest rate trends, along with rising transaction demand for the renminbi by Hong Kong residents on the mainland, has not led to any noticeable weakening of the HK dollar exchange rate, Yam said.
The Hong Kong dollar is pegged to the U.S. dollar at 7.8 HK dollar.
Yuan deposits taken in Hong Kong are deposited with the People's Bank of China through the renminbi clearing bank in Hong Kong, making sure that renminbi deposits in Hong Kong do not inflate the renminbi money supply on the mainland, Yam added.
Demand for renminbi by Hong Kong residents, putting further upward pressure on the yuan's exchange rate as it turns greater, were very small amounts compared with the total size of capital inflows into the mainland, the monetary authority chief said.
"In any case, what is going on in terms of renminbi banking business in the free market of Hong Kong provides valuable information for the further reform and liberalization of the financial systems on the mainland," Yam added.
(Xinhua News Agency April 25, 2008)
