Hong Kong announced further measures on Tuesday to liberalise its fledgling offshore yuan market, allowing banks to take on more risks and increase their involvement in the market. "The key focus is further liberalisation," HSBC said of the new measures in a note to clients, adding it should lead to downward pressure on the US dollar in the city's offshore yuan forward market.
"This is part and parcel of the ongoing liberalisation and internationalisation of the RMB (yuan) - something we see as a key policy focus in 2012," it said.
China has taken a series of measures to invigorate the offshore yuan market in Hong Kong as part of a longer-term plan to promote the use of the yuan overseas and make it a fully-convertible and international reserve currency along with the US dollar.
On Monday, Britain said it was teaming up with former colony Hong Kong to secure London a top spot as an offshore trading centre for the Chinese currency, as the UK aims to boost trade and investment ties with fast-growing Asian markets.
The Hong Kong Monetary Authority (HKMA) said on Tuesday it had allowed banks to include their holdings of yuan-denominated China sovereign bonds issued in Hong Kong and bonds traded in mainland China's interbank market in their reserve requirement.
This would allow the banks to have more cash for offshore interbank lending and investment in yuan-denominated bonds, traders and analysts said.