Hong Kong dollar remains strong

Monetary Authority belies marginalisation of HK dollar amid intensified use of renminbi in Hong Kong.

Concerns about the “marginalisation” of the Hong Kong dollar are ill-founded, Monetary Authority Chief Executive Norman Chan says, adding public and business confidence in the local currency remains strong.

In an article published on the authority's website on Monday, Mr Chan said some people think the wider circulation of renminbi in the retail market is “currency substitution”. The fact is that as tourists come to Hong Kong to shop and spend, retail shops and merchants seek to facilitate these customers by accepting payment in foreign currencies, such as the US dollar, pound sterling, euro, yen and Australian dollar.

“Renminbi is just the same. As more Mainland tourists visit Hong Kong, it is only natural we see a greater use of renminbi. This is a result of our booming in-bound tourism industry and has nothing to do with any loss of confidence in the local currency. Actually we do not see any local shop refusing to accept the Hong Kong dollar and requesting domestic customers use renminbi to pay for goods or services."

Currency switching
Refuting the misconception the growth in renminbi deposits means the Hong Kong dollar is being marginalised, Mr Chan said most of the increase in 2010 came from deposits from corporate clients.

Deposits by these clients are mostly renminbi funds remitted by Mainland enterprises into banks in Hong Kong to pay for imports of goods and services, rather than conversion from Hong Kong dollars by Hong Kong companies.

As for RMB deposits from personal customers, some of them do come from conversion of Hong Kong dollars for payment, savings or investment purposes. But again the conversion into RMB by personal customers does not involve Hong Kong dollars only, as foreign currency deposits are also being used.

“Such currency switching is just normal asset allocation behaviour by individuals and should not be mistaken as evidence for Hong Kong residents’ reluctance to use or hold the domestic currency because of a loss of confidence.

“Confidence of Hong Kong people in the local currency has indeed remained strong, as evidenced by the amount of Hong Kong dollar banknotes issued in the past 10 years. Hong Kong dollar banknotes, together with credit cards and debit cards, continue to be the primary means of payment in daily domestic spending by Hong Kong residents.”

HK dollar circulation
The value of Hong Kong dollar banknotes in circulation increased from $108 billion at the end of 2001 to $227 billion at the end of 2010, showing the use of Hong Kong dollars has grown faster than the economic output.

“If we look at London, which over the years has developed into the most important offshore Eurodollar centre in the world, the pound sterling has not been displaced or marginalised, and has remained the predominant currency used in payments and other commercial transactions by local residents.”

Mr Chan said Hong Kong is an international financial centre in Asia with the presence of many major international banks. Banks in Hong Kong take deposits in renminbi as well as in other foreign currencies.

The ratio of foreign currency deposits has remained steady at about half of total deposits in the banking sector in the past 20 years, he added in a Monetary Authority report.

“The continued growth of foreign currency deposits and their high percentage in total deposits are clear evidence of Hong Kong’s attraction and success as an international financial centre. Any worry of marginalisation of the Hong Kong dollar is thus unfounded.”