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HK may become test ground for freer yuan
2006-02-22 22:27:42 Shenzhen Daily
BEIJING, Feb.23-- The Central Government may allow the issue of yuan bonds in Hong Kong and permit cross-border trade to be settled in yuan, Hong Kong's financial secretary said yesterday, presaging another step toward a freer-floating currency.

Calling Hong Kong a "testing ground," financial secretary Henry Tang said the two measures under consideration would spur bilateral trade while developing the region's bond markets.

If the proposals are approved, Hong Kong would benefit by being the only place outside the mainland permitted to trade in yuan-denominated securities.

Economists said a market in such bonds may dampen speculative inflows into the mainland betting on yuan appreciation. It might also shed more light on the market value of the yuan, which can be converted for trade and foreign direct investment but only for limited capital transactions.

Economists did not expect the government to allow such a market to expand rapidly in the short term. Tang did not say when he expected the twin proposals to win approval.

"They are vitally important in reinforcing our position as an international financial center, and will at the same time provide a testing ground for the move toward full convertibility of the yuan," Tang said.

"We need, however, to synchronize in tandem with the pace of financial reform on the mainland and move forward gradually."

The government dropped the yuan's long-standing peg against the U.S. dollar in July, and has long said it would eventually make the currency freely convertible.

(Source: Shenzhen Daily/Agencies)

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