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Too early to consider yuan as Hong Kong dollar peg - HKMA chief

By Saikat Chatterjee

HONG KONG, Oct 14 (Reuters) - Hong Kong has no immediate plan to adopt the Chinese currency as an alternative to its peg to the U.S. dollar even though the city is the key hub for widening yuan usage in global trade, Hong Kong's central bank chief said on Monday.

In an article posted on the Hong Kong Monetary Authority's website to mark the 30th anniversary of the Hong Kong dollar's pegging to the U.S. currency, Chief Executive Norman Chan defended the city's policies on the dollar peg.

"If the anchor currency were changed to the renminbi, the Exchange Fund would have to hold nearly 2 trillion yuan ($327.4 billion) worth of assets, which far exceeds the amount of renminbi assets in the offshore renminbi market presently in existence," Chan wrote.

"Therefore, it is too early to consider the use of the renminbi as our anchor currency while it is not yet freely convertible and the capital account of the Mainland is still not fully liberalised," the HKMA chief said.

His article can be found at:

Chan's comments come at a time property price inflation in Hong Kong is rampant and the city's strengthening ties to the mainland have raised questions about the local dollar's future.

China's push to promote its currency in international trade has seen the renminbi overtake the local Hong Kong dollar in trading volumes in the global currency market. Growing numbers of multinational companies are tapping the offshore yuan bond market to finance operations on the mainland.

Chan also pointed out the impact a stronger Hong Kong dollar would have on the local economy if it was pegged to the yuan. The corrosive effects of a stronger currency on its exporters would far outweigh the benefits to imports and substantially weaken the overall competitiveness of the economy, he said.

On Monday, the Chinese currency had a record high close of 6.1079 to the U.S. dollar. In comparison, the Hong Kong dollar is pegged to the U.S. dollar on a fixed exchange rate of HK$7.8 per dollar and allowed to fluctuate in a tiny 7.75 - 7.85 band.

"As Hong Kong's labour productivity growth is much slower than that of the Mainland (our estimates suggest an average annual rate of about 3-4 percent over the past ten years for Hong Kong versus almost 10 percent for the Mainland), we would have to go through the pain of pay cuts and deflation before our competitiveness could be restored," Chan wrote.

US$1 = 6.1079 yuan