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Central Bank to Step Into Hong Kong to Support Offshore Yuan

Central Bank to Step Into Hong Kong to Support Offshore Yuan

* The issuance of central bank bills in Hong Kong aims to enrich the spectrum of highly rated, yuan-denominated financial products in the offshore market

* Move comes at a time when market participants expect the U.S. Federal Reserve to raise interest rates next week, which would put downward pressure on the yuan

(Beijing) — China’s central bank is taking its first steps toward supporting the offshore yuan market by paving the way for its bill issuance in Hong Kong, the world’s largest offshore yuan clearing center.

The People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, signed a memorandum Thursday for the future tendering and issuance of PBOC bills through the HKMA’s bond tendering platform.

The issuance of PBOC bills in Hong Kong aims to enrich the spectrum of highly rated, yuan-denominated financial products in the offshore market, they said in statements. The details of the issuance will be separately announced.

China has used PBOC bills as a tool to manage market liquidity, as well as guide market expectations, since April 2003. Generally speaking, the issuance of central bank bills reduces the loanable funds available with commercial banks, thus helping push up short-term interest rates, making money more expensive to borrow. When the bills mature, the effect is reversed.

The PBOC move comes at a time when market participants expect the U.S. Federal Reserve to raise interest rates next week, which would put downward pressure on the yuan.

Courtesy of caixinglobal.com

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