Hong Kong to Launch New Yuan-Denominated Trade Finance Scheme and Expand Bond Connect Program
Hong Kong will launch a new yuan-denominated trade finance scheme and expand the hours and scope of its Bond Connect program for mainland China investors, according to Eddie Yue, Chief Executive of the Hong Kong Monetary Authority.
The new trade finance scheme will use 100 billion yuan ($13.64 billion) in currency swaps for one, three and six months, and will provide banks in Hong Kong with a stable source of relatively lower-cost yuan funds. The scheme will be supported by the People’s Bank of China, and will allow banks to exchange their Hong Kong dollars for yuan funding with the HKMA at interest rates linked to onshore rates.
The Bond Connect program will also be expanded, with the settlement deadline extended to 4:30 p.m. and the inclusion of U.S. dollar and euro-denominated bonds, in addition to yuan bonds. The HKMA will also promote yuan repurchase agreements, allowing international investors to use onshore bonds as collateral for yuan funds in Hong Kong, starting from February 10.
The moves are aimed at supporting the yuan, which has slid to 16-month lows, and to help Hong Kong provide cheap yuan funding in the territory. The People’s Bank of China has also pledged to support Hong Kong in the launch of the trade finance scheme.
