Mainland, Hong Kong agree to currency swap
On January 20, the People’s Bank of China (PBoC) and the Hong Kong Monetary Authority (HKMA) signed a currency swap agreement, adding another area of monetary cooperation between the two organizations.
Under the agreement, short-term liquidity support can be provided to the Mainland operations of Hong Kong banks and the Hong Kong operations of Mainland banks in case of need. This will bolster confidence in Hong Kong’s financial stability, and will also help promote financial stability in the region and the development of renminbi-denominated trade transactions between Hong Kong and the Mainland. The agreement has a three-year term, which can be extended, and can provide up to US$29.1 billion in liquidity support.
“The signing of a currency swap agreement by the PBoC and the HKMA is a policy measure of the Central Government to further support Hong Kong’s economic development, and it will help to maintain Hong Kong’s status as an international financial center,” Hong Kong Financial Secretary John C. Tsang said. “I would like to express my gratitude to the Central Government for its support.”
On December 19, the Central Government announced it would take steps to back Hong Kong’s financial stability and economic development, including agreeing to the signing of a currency swap agreement. This PBoC-HKMA agreement is one result.
At the signing, HKMA Chief Executive Joseph Yam said, “The signing of this agreement by the PBoC and the HKMA represents a further strengthening of financial cooperation between the Mainland and Hong Kong. The establishment of a currency swap arrangement will help to address contingent needs and maintain financial stability. It will also contribute to the development of a mutually assisting, complementary and interactive relationship between the financial systems of the Mainland and Hong Kong.”
Foreign currency reserves at US$182.5 billion
Hong Kong’s foreign currency reserves stood at US$182.5 billion at end- December, according to the Hong Kong Monetary Authority, compared to US$165.9 billion at end-November.
The increase in settled foreign currency assets is due mainly to the purchase of foreign currencies with Hong Kong dollars.
Including unsettled forward contracts, the foreign currency reserve assets stood at US$184.8 billion, compared to US$166 billion the month before.
Hong Kong is the world’s eighth-largest holder of foreign currency reserves, after mainland China, Japan, Russia, Taiwan, India, Brazil and South Korea.
The total foreign currency reserve assets represent approximately eight times the currency in circulation, or 44% of Hong Kong dollar M3.
Exchange Fund totals US$199.7 billion
Total assets of the Hong Kong Exchange Fund amounted to US$199.7 billion on December 31, according to the Hong Kong Monetary Authority. This is US$16.87 billion more than at end-November.
Foreign currency assets increased US$16.65 billion and Hong Kong dollar assets increased US$217.94 million.
The increase in foreign currency assets is due mainly to purchases of foreign currencies with Hong Kong dollars and valuation gains on foreign currency investments.
The rise in Hong Kong dollar assets is due mainly to increases in the balance of the banking system and bank borrowings. These increases were substantially offset by the sale of Hong Kong dollars for foreign currencies and fiscal drawdowns.
The Currency Board Account shows the monetary base at end-December was US$64.94 billion, an increase of US$11.28 billion, or 21%, from the previous month. The increase is due mainly to increases in the Aggregate Balance and Certificates of Indebtedness. The latter reflected the seasonal demand for banknotes around Christmas and the New Year.
Backing assets increased US$12.02 billion, or 20.4%, to US$71.1 billion. The increase is attributable mainly to an increase in the Aggregate Balance and issuance of Certificates of Indebtedness in the monetary base, together with revaluation gains and investment interest. At the end of December, the backing ratio stood at 109.48%, compared with 110.09% at the end of November.
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