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HONG KONG BANKS TO TEST USING MAINLAND CURRENCY

HONG KONG - The Chinese central government has made a preliminary agreement to let banks in Hong Kong conduct several types of business using mainland China's currency on a trial basis.
 
Once details are worked out, banks in Hong Kong could take deposits in yuan, which are also known as renminbi, or the "people's money," Chief Executive Tung Chee-hwa told reporters recently.

The banks also could carry out remittance, exchange and credit card transactions in yuan, Tung said as he announced further details of a free trade pact that is intended to give Hong Kong companies a head start on breaking into China's market as it opens to the outside world.

The yuan has never been fully convertible to other currencies -- which has long been a major impediment to multinational corporations trying to do business in the booming mainland.

Hong Kong has been viewed as a likely location for testing the waters on making the currency more convertable, and allowing limited bank transactions on a trial basis could be seen as part of that effort.

The Chinese government restricts foreign exchange dealings in the yuan, which can only be converted into other currencies for foreign trade and a limited range of other purposes.

The Hong Kong Monetary Authority welcomed the news, saying the move will benefit the territory's development as an international financial center and accelerate the growing economic integration between Hong Kong and mainland China.

But Monetary Authority Chief Executive Joseph Yam noted in a statement that the proposal was still in a preliminary stage and would require more discussion.

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