EFAC Sub-Committees (II)

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28 Apr 2005

EFAC Sub-Committees (II)

This second article on the new sub-committees under the Exchange Fund Advisory Committee examines the tasks facing the Financial Infrastructure Sub-Committee, or FISC.

 I mentioned in last week's Viewpoint column that, with the approval of the Financial Secretary, we have established a Financial Infrastructure Sub-Committee under the Exchange Fund Advisory Committee. Financial infrastructure may seem a somewhat technical subject, but its importance to the economy is comparable to that of the physical infrastructure. There are a lot of similarities between the two. While the physical infrastructure has the primary role of ensuring the safe and efficient movement of people and goods, the financial infrastructure has the similar role of ensuring the safe and efficient movement of money. Both of these processes are essential to economic prosperity. Both are a public good that requires the involvement of the public sector in their development. This is one reason why we at the HKMA have taken the initiative and placed much emphasis on developing the financial infrastructure of Hong Kong.

We can in fact say that Hong Kong now has one of the most sophisticated financial infrastructures in the world. Indeed, in certain respects, for example in the real-time payment and settlement of cross-currency transactions, we also have the most robust and cost-effective system in the world. But there are areas for further development, with a view to maintaining Hong Kong's status as an international financial centre and the stability and integrity of our monetary and financial systems.

The increasing application worldwide of modern information technology in finance also presents difficult challenges, in terms of both risk management and the provision of efficient and competitive financial services. Specifically and importantly, for Hong Kong to aspire to be the international financial centre of China, we have to position ourselves strategically. This means developing a financial infrastructure that can cater for the needs arising from not only the international but also the domestic financial intermediation activities of the Mainland. As Mainland savings are invested overseas, we want this to be organised in Hong Kong. As foreign savings are invested on the Mainland, we want this to be organised in Hong Kong. As Mainland savings are channelled into investments on the Mainland, we also want this, as far as is practicable, to be organised in Hong Kong.

FISC has been given the task of looking strategically into how we should further develop our already quite sophisticated financial infrastructure. We have had two meetings so far this year. Almost certainly one specific area to which the Sub-Committee will be paying attention is an electronic, real-time payment and settlement system for the renminbi and for financial instruments denominated in that currency.

We have already made a good start last year, taking advantage of the introduction of renminbi banking business in Hong Kong, to establish renminbi accounting relationships between banks in Hong Kong and the renminbi clearing bank, and between the banking systems of Hong Kong and the Mainland. The next step is to introduce a renminbi payment capability, in real time, and in electronic form, among the banks. The need for this will inevitably arise if other types of renminbi banking business are allowed in Hong Kong and there is a need for us to get ourselves as ready as possible to take advantage of possible developments on that front. And once we have attained that capability, we will be able to cope with any other types of financial transactions involving the use of the renminbi. The reform and liberalisation of the Mainland is a trend that cannot be reversed. Exchange controls on the Mainland will in time be relaxed and may even be eliminated. The renminbi will in time become a freely convertible and major currency, and possibly an anchor or reserve currency. We should spare no efforts and waste no time in preparing ourselves well to take advantage of these trends.

 

Joseph Yam

28 April 2005

 

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