The Chinese Offshore Renminbi Currency and Bond Markets: The Role of Hong Kong
China and World Economy, Vol. 20, No. 3, 2012, 107-122
23 Pages Posted: 5 Apr 2012 Last revised: 12 Jun 2012
Date Written: December 1, 2011
Abstract
This paper discusses the role of Hong Kong in China's grand scheme to build up the RMB as a global reserve currency. We highlight the economic importance of Hong Kong to China in terms of channeling foreign direct investment into China, some of which, in the future, will be denominated in the RMB. We discuss the development of China's RMB currency swap and deposit markets in Hong Kong. These offshore markets enable the RMB to trade freely, setting the stage for the RMB to become fully convertible and allowing market forces to play a role in pricing the value of the RMB, and help in the development of the RMB-denominated bond (or dim sum bond) market in Hong Kong. Finally, we present evidence of the phenomenal growth of the dim sum bond market in Hong Kong, which can further enhance and strengthen the use of the RMB outside China.
Keywords: dim sum bonds, FDI, offshore market, reserve currency, RMB
JEL Classification: F15, F31, G28
Suggested Citation: Suggested Citation