HK US dlr clearing volume picking up over time

But the system which allows participants to settle U.S. dollar transactions in real-time for the first time in Asia should attract large volumes longer-term and build up the territory's reputation as a regional financial hub, said HSBC Head of Payments and Cash Management Asia Pacific Andrew Long."I don't expect volume to pick up much over the coming year but over the next five years, yes, as it will take a slow ride to get people to accept," he said in an interview on Dec 27. "In terms of providing financial services, it is something extra that Hong Kong can offer investors so there are a lot of opportunities that could develop over time."

Hong Kong's de facto central bank unveiled the final phase of its U.S. dollar clearing system before Christmas, allowing U.S. dollar checks drawn in Hong Kong to be cleared in the territory the next day rather than two weeks later.

This followed on the heels of a real time gross settlement mechanism enabling Hong Kong banks to make interbank payments in U.S. dollars from August and to execute real-time payment versus payment (PvP) settlement for foreign exchange transactions between U.S. and Hong Kong dollars from September, eliminating the need to settle deals 12 hours later in the New York time zone.

From turnover amounting to US$870 million on the first day of operation in August 2000, the gross settlement system was now registering around 2,000 transactions a day amounting to US$2 billion, Long said. There was currently an additional US$1 billion worth of daily transactions going through the PvP system, he said.

No significant take-up on the cheque side was expected in the medium-term as Hong Kong had few products and services priced in U.S. dollars.

ADDED STRING TO BOW

The U.S. dollar clearing system is a boon to the territory's ongoing efforts to consolidate its position as a leading financial hub as it could help attract more global business and facilitate U.S. dollar listings for stocks.

"Around 95 percent of international trade is now priced in U.S. dollars and there's now no reason why much of that U.S. dollar settlement should not be done in Hong Kong rather than New York," said Long."Once you start getting securities listed in U.S. dollars in Hong Kong, corporate or consumer customers will also be able to pay for securities in U.S. dollars," he said.

The new clearing system could also eventually attract the bulk of Asia's foreign exchange U.S. dollar clearing business to Hong Kong instead of New York, he said.

However, Long said it would take time for foreign customers to migrate to the Hong Kong system as two offshore clients wanting to settle deals both had to have accounts with one of 62 participating banks in the territory.

"If only one of two Korean banks for example has an account with a participating bank in Hong Kong then the two clients would continue settling in New York," he said. "But we hope the Hong Kong system both in terms of risk management and cost will encourage them eventually to move into Hong Kong."