The Hong Kong Monetary Authority and the People’s Bank of China announced groundbreaking policy measures.
These initiatives deepen financial market connectivity and reinforce Hong Kong’s status as the top offshore center for RMB transactions.
One key measure is the RMB Trade Financing Liquidity Facility. This facility provides banks in Hong Kong with a stable source of RMB funds and supports them in meeting the growing demand for trade financing in RMB.
The facility’s total size is RMB 100 billion. Banks can access funding on one-month, three-month, or six-month terms. Interest rates will reference onshore rates with an added spread.
The facility will operate through repo transactions and currency swaps. Banks can swap HKD for RMB using the HKMA, which will source RMB from the PBoC under the Currency Swap Agreement.
This facility will boost liquidity in Hong Kong’s offshore RMB market and attract enterprises engaged in cross-border trade. The HKMA plans to launch it by late February and will share details soon.
Enhancements to Bond Connect and Offshore RMB Liquidity Management
The HKMA and the PBoC also introduced enhancements to the Bond Connect program. These changes build on the success of the Southbound Bond Connect.
They aim to streamline processes and meet investor needs.
Settlement times under the Central Securities Depositories (CSDs) linkage will be extended. Multi-currency bond settlements will also be supported, including RMB, HKD, USD, and EUR.
Additionally, more Mainland institutional investors will gain access over time.
These improvements will boost the Hong Kong bond market and support the growth of the Dim Sum bond market, which plays a vital role in issuing offshore RMB bonds.
The HKMA will also launch offshore RMB repo transactions, using Northbound Bond Connect bonds as collateral. The goal is to create a market-based arrangement for managing offshore RMB liquidity.
Northbound Bond Connect bonds will now serve as eligible margin collateral. Offshore investors can use these bonds at OTC Clearing Hong Kong Limited (OTCC) for derivative transactions.
This policy applies to bonds issued by the Mainland Ministry of Finance and policy banks.
These measures reduce costs for market participants, improve capital efficiency, and make RMB assets more attractive. Global investors will benefit from greater access and flexibility.
Cross-Boundary Payment Integration and Greater Bay Area Facilitation
Another milestone is the linkage of faster payment systems. This integration connects the Mainland’s Internet Banking Payment System (IBPS) with Hong Kong’s Faster Payment System (FPS). It will allow 24/7 real-time, small-value remittances.
Users can make transfers using mobile or account numbers. The service will launch by mid-2025, and enhancements based on user feedback will follow.
This initiative improves convenience for residents in both regions. It also supports economic integration and cross-border collaboration, making financial lives smoother and more efficient.
New policies in the Greater Bay Area (GBA) will further facilitate financial transactions.
More banks authorized by the PBoC will offer account opening via attestation services, and Hong Kong residents will benefit from easier access to Mainland financial services.
These measures enhance the quality of cross-border banking. They support consumption, commuting, and daily life for Hong Kong residents. The policies demonstrate a commitment to fostering closer regional ties.
These initiatives highlight the HKMA and PBoC’s shared vision. They aim to strengthen financial market infrastructure and deepen economic ties while focusing on enhancing Hong Kong’s role as a global financial hub.
These changes have far-reaching implications. They improve connectivity and promote the use of RMB in international markets.
Financial institutions and investors will discover new growth opportunities in this evolving landscape.
Hong Kong continues to serve as a bridge between global and Mainland markets. Its pivotal role in the financial ecosystem is clear. The future holds promise for more dynamic and resilient RMB systems.
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