Hong Kong and Middle Eastern Countries Explore Financial Collaboration

Hong Kong's financial sector, led by the Hong Kong Monetary Authority (HKMA), is set to explore collaboration with counterparts from the United Arab Emirates (UAE) and Saudi Arabia.

Delegations from these Middle Eastern countries are expected to visit Hong Kong later this year to discuss potential partnerships in the banking and finance sectors, including various yuan-related services. The move aims to facilitate trade settlements between these economies and China using the yuan.

Eddie Yue Wai-man, CEO of the HKMA, highlighted the growing interest from economies in the Middle East and Southeast Asia in utilizing the yuan for trade with China. He noted that the coming visits by UAE and Saudi Arabian delegations could pave the way for increased financial cooperation, although specific details and timelines were not provided.

Yue emphasized the role of Hong Kong as an international financial center and offshore yuan hub. Earlier this year, Hong Kong government officials, including Chief Executive John Lee Ka-chiu and Financial Secretary Paul Chan Mo-po, conducted roadshows in the Middle East to promote Hong Kong's financial capabilities.

The yuan, also known as the renminbi, has been steadily gaining international prominence. In 2022, it ranked as the fifth most-traded currency, up from eighth place in 2019, according to the Bank for International Settlements' (BIS) Triennial Central Bank Survey. The yuan's share of all trades increased to 7 percent in 2022, compared to 4 percent in 2019 and less than 1 percent in 2010.

Hong Kong plays a vital role in the internationalization of the yuan. The city boasts over HKD 900 billion in yuan deposits, surpassing other international financial centers like Taiwan, Singapore, and the UK. Additionally, Hong Kong conducts the largest volume of offshore yuan trade settlements.

The various connect schemes that facilitate cross-border trading between mainland China and international investors, such as the stock connect link between Hong Kong and Shanghai, have strengthened Hong Kong's position as an offshore yuan center. Further developments are expected in yuan-related investments and reserve currency status, particularly as more companies seek to issue yuan-denominated bonds, leveraging Hong Kong's active capital markets for these activities.

The collaboration between Hong Kong and Middle Eastern countries underscores the ongoing efforts to expand the use of the yuan in global trade and finance, offering new opportunities for financial institutions and businesses in the region.

By fLEXI tEAM