New findings of the latest Grant Thornton International Business Report (IBR), published by Grant Thornton Jingdu Tianhua, reveal that Hong Kong business leaders are more confident using the renminbi (RMB or yuan) than other major currencies, including the HK dollar, the US dollar and the euro.
Fully 80% of local privately held businesses surveyed said they are “very confident” or “confident” in using the RMB, compared to only 24% in the US dollar and 18% in the euro.
“According to the Hong Kong Monetary Authority, as at the end of June over RMB550 billion were deposited in Hong Kong, an increase of around 75% since the end of last year,” says Daniel Lin, managing partner of Grant Thornton Jingdu Tianhua.
Lin says the rapid uptake of the RMB is indicative of its imminent rise into becoming one of Hong Kong’s most trusted currencies. This is no surprise, with the current backdrop of a weakening HKD over the recent years, due to the pegged exchange rate system.
"Extremely loose US monetary policy has eroded much of the HKD’s value and shaken business confidence in the currency,” adds Lin.
According to Lin, uncertainty over the economies of Europe and the US has cast a shadow over the global economy. It has led many to speculate that the US Federal Reserve will be forced to embark on another around of quantitative easing (QE3) to counteract the economic slump.
"This has far-reaching implications on continuing the decline of the HKD, further undermining investors’ confidence in the currency,” says Lin.
Grant Thornton’s IBR survey results also show that many factors contribute to business confidence in currency, principally “stability” (58%), “demand for the currency” (58%), “liquidity” (50%), and “confidence in the currency issuer” (46%).
“The process of RMB internationalisation is still underway, but it has the potential to emerge as an international currency in the future, as it becomes freely convertible with reasonable liquidity,” says Lin.
Lin says the current initiatives undertaken by the Hong Kong Stock Exchange in proposing a dual currency trading platform is a strong catalyst in internationalising the RMB and establishing Hong Kong as a sound RMB offshore centre.
"Given Hong Kong’s close geographical proximity to the Mainland and its state-of-the-art financial infrastructure, it will play a key role as a testing ground for RMB internationalisation,” notes Lin.
Lin adds that the raising of the US debt ceiling and subsequent round of spending cuts are likely to hinder the recovery of the US economy, and this is likely to have grave repercussions for Hong Kong’s economy in the long term.
"We welcome the Hong Kong government to initiate discussion on the mitigation of the impact of external shocks on the local economy. It is important to seek alternatives to sustain Hong Kong’s competitiveness in the long run,” remarks Lin.
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