HK Dollar – A Collectible ?
I was having a lunch time chat with a Hongkie Babe, my good friend, whose is a CNH portfolio manager in Hong Kong, of course, and I was curious as to how the much the CNY plays a part in life there.
Well, the Hong Kong dollar’s role is diminishing into a Macau Pataca (the so-called official currency of Macau) and I have to admit, I do not know much about the Pataca because I have always assumed you use the Hong Kong dollar over at Macau.
The use of the Chinese Yuan or Renminbi in Hong Kong has risen rapidly with the yuan making up 12% of the local HK deposit base. It is believed that when the percentage closes in on 30%, the local HKD interest rates and bank liquidity will be highly influenced by the CNH deposits (offshore CNY), which is almost on par with the CNY (onshore CNY).
Some salaries in HK are already being paid in yuan and most shops in HK are accepting yuan payments, thus it is only a matter of time before the HKD fades away in importance into 2047 (50 years after 1997) when the Basic Law expires and its role as the official currency of Hong Kong comes to an end, if not sooner ?
Even the HKD bond markets are crying out as the relatively smaller CNH bond market has overtaken the HKD bonds in volume and CNH government bonds qualify to be used in HK banks’ balance sheets as reserves.
Will the HKD be nothing more than a collectible ?
Not while it is still pegged to the USD. There will always be die hard fans and demand for the HKD and mainland Chinese firms continue to rely on their HKD business accounts to hedge USD bets, the more accounts the merrier.
Thus I see them keeping it alive for a while even as the Chinese yuan takes over the daily lives of the people. ATMs dispensing the yuan from our CNH accounts even for us, Singaporeans.
Some see the litmus test as the day when Chinese yuan denominated housing loans overtake the HKD ones.
It is worthy to note, however, that the CNYHKD has collapsed since Jan this year, and moved lower when China eased their foreign exchange controls in March, on the back of the USD appreciation and the HKD peg to the USD. https://tradehaven.net/market/fx/made-in-china-is-not-bad-usdcny/
Yet it is a matter of time, as China continues to reform, before the Chinese yuan gains universal acceptance and the HKD’s role is relegated to nothing more than a collectible in the days ahead.