HK's yuan push would not undermine local dollar, peg, Greenwood says

Hong Kong’s push for more yuan usage would not undermine the local currency or its peg to the greenback, according to John Greenwood, the economist widely regarded as the chief architect of the dollar peg.

The Chinese currency will not account for a large proportion of Hong Kong government expenditure, nor will it make up a significant share of overall transactions between the mainland and the city, Greenwood said in an interview with the media.

It is a gesture of willingness, he said. 

Still, Greenwood believes Hong Kong can facilitate yuan internalization through its strong financial institutions, vibrant markets, and sound regulatory system.

He said the currency needs further development on the lending side, rather than relying on deposit growth.  

While reiterating that the resilient peg system remains Hong Kong’s best option, Greenwood said narrowing the trading band may increase the mechanism’s stability.

The local dollar is trading in the 7.75-7.85 band against the US dollar. 

The trading band could be narrowed to 7.79-7.81, Greenwood said, stressing it is purely for academic discussion.

Greenwood is a member of Hong Kong's de facto central bank’s currency board sub-committee, which monitors and reports on the currency board arrangements that underpin the peg system. 

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