Guy Lam

    CHINA recently announced that it will accept its own currency, in addition to the U.S. dollar, from foreigners making direct investment in the country. In other words, China has recognized its own “redback” as an international currency with similar status to the greenback.

    The next move would be for Hong Kong, China’s special administrative region (SAR), to take the same position to recognize RMB as an international currency. To achieve that, the Hong Kong SAR Government could accept RMB, in addition to U.S. dollars, as the reserve currency. At present, Hong Kong’s currency issuing banks (HSBC, Standard Chartered, or Bank of China) must deposit US$1 with the Hong Kong Monetary Authority for every HK$7.8. Before the United States came to dominate world affairs in the 20th century, the reserve currency was the British pound. Now the time has come to change or modify Hong Kong’s reserve currency requirement, perhaps by allowing initially 20-30 percent of the reserve currency allocated to the RMB, with the U.S. dollar still the dominant reserve currency.

    It is worth noting that Hong Kong would not be the first jurisdiction to choose the RMB as a reserve currency. Nigeria has decided to do so ahead of Hong Kong.

    Hong Kong’s status as an international financial center could only be strengthened by the internalization of the RMB. The SAR is already destined by Beijing to become the offshore RMB center, with RMB denominated shares and bonds already being traded locally every day, not mentioning the billions of RMB deposited into banks in Hong Kong.

    The next move would be for the SAR Government to make RMB legal tender in Hong Kong. The United Kingdom and Singapore also want to be offshore RMB centers. We want to make sure we are ahead of the game. Looking back, Hong Kong has helped China modernize by providing in the past, the U.S. dollar, an international currency. Now the SAR can assist by internationalizing the RMB, so our motherland may print her own.

    (The author is chairman of the Association of Experts for Modernization, Ltd.)