Peter Pang: A decade of Hong Kong Dollar settlement in the CLS system
Opening remarks by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary
Authority, at the 10th anniversary celebration of Hong Kong Dollar settlement in CLS, Hong
Kong, 21 October 2014.
* * *
David1, distinguished guests, ladies and gentlemen,
I am honoured to be here today to celebrate the 10th anniversary of the Hong Kong dollar
settlement in the CLS system.
Opening
2. If we were a married couple, this event would mark our Tin Anniversary, with tin
symbolizing durability and pliability. It is good to note that our bonding remains robust,
despite the fact that CLS has 16 other currency partners, and its desire to have more in the
future.
3. According to Jane Austen, "happiness in marriage is entirely a matter of chance".
Being a monetary authority, the HKMA would not leave such an important financial
infrastructure for addressing the FX settlement risk to chance.
4. The one thing that keeps our bonding with CLS strong is our common vision - to
provide the solution to help market players eliminate the FX settlement risks through a highly
effective and efficient settlement platform.
5. Our decision to join the CLS in 2004 was based on the simple fact that CLS
provides the most powerful global solution to eliminate the FX settlement risks among market
players. And CLS has delivered such a solution without a hitch in the past decade.
Good times
6. Like all happy marriages, the bonding should foster growth and help the partners to
realise their potential during good times; and provide an anchor to help them to face the
challenges of the bad times with resilience and confidence.
7. Both partners have certainly done well during the good times in the past decade.
(i) HK's developments
8. During this period, Hong Kong has continued to consolidate its role as a premier
international financial centre and has become a more globalised economy:
- The total assets of the banking system have increased 2.7 times to HK$18 trillion,
with foreign currency assets accounting for about 60% of the pool.
- The market capitalization of the Hong Kong Stock Exchange has become more than
4 times bigger, advancing from number 8 to number 6 in the global ladder.
- The bond market has also increased by about 3 times, with foreign currency
denominated bonds accounting for about 40% for most of the time.
9. Hong Kong has also become a hub for private wealth and asset management.
Nearly 80 of the top 100 global money managers are in Hong Kong. The total assets under
management hit a record high of US$2.1 trillion in 2013, with 72% of the funds sourced from
non-Hong Kong investors. Hong Kong's net International Investment Position has also grown
from 250% of our GDP in 2004 to close to 300% in recent years.
10. 2004 also marked the commencement of offshore RMB business in Hong Kong and
we are now the global hub of offshore RMB business.
11. Against this encouraging backdrop, the average daily FX turnover in Hong Kong has
more than doubled, from US$102 billion in April 2004 to US$275 billion in April 2013. In fact,
Hong Kong has become the 5th largest FX trading centre in 2013, up from the 6th place in
2004. In short, Hong Kong has further consolidated its status as an international investment,
banking, payment and commercial centre.
12. Effective FX settlement is a prerequisite to all these achievements, given the
significant fund flows that an IFC, such as Hong Kong, needs to handle, and the need to
maintain the stability of the Hong Kong dollar under the currency board arrangement.
(ii) CLS developments
13. As for CLS, as many of you know, it has gone from strength to strength in the past
decade. For instance, the number of currencies it supports has grown from seven from the
start, to 17 today. The number of settlement members has also increased from 39 to 62.
14. Moreover, the volume and value of transactions via the CLS have expanded
significantly, with an average daily value of US$5 trillion2 and daily volume of one million
transactions. This should not be surprising as the global FX market has become much
bigger, with the average daily turnover in 2013 (USD 5.3 trillion3) three times bigger than in
2004.
Challenging times
15. As close partners, we have also faced significant challenges during difficult times in
the past decade.
16. We all remembered vividly how a large part of the financial markets had almost
come to a standstill after the collapse of Lehman Brothers in September 2008. Yet, the
foreign exchange market continued to operate smoothly. Many market players had attributed
the market stability to the support provided by CLS.
17. I also believe that our linkage with CLS has also provided the functional resilience
and, importantly, confidence, that our market players needed in those critical moments.
18. This is certainly the case post Lehman's collapse, as Hong Kong's companies and
individuals liquidated overseas assets and repatriated HK$220 billion back into Hong Kong to
tide themselves over the liquidity and credit squeeze.
Looking forward
19. It is no exaggeration to say that CLS is now one of the most important pieces of
infrastructure supporting the global financial market. The creation of the CLS Bank is also a
shining example that demonstrates the power of private sector-public sector collaboration.
The HKMA is proud to be part of that success story.
20. So, what's next? I expect markets to keep changing, and they will only change faster
in the coming years.
21. As technology advances, and Asia providing the engine for global growth in the
medium term, I see plenty of opportunities for CLS to put its strategic focus in the region. The
HKMA welcomes the CLS' efforts to put more new currencies and members into its orbit.
22. I look forward to seeing this happen sooner rather than later, and welcome
opportunities for cooperation and knowledge sharing between us. This is all because of what
I said earlier - that we shared a common vision, and a more widely participated system
should mean even less settlement risks for market players.
23. I look forward to celebrating our silver anniversary in 2029.
Thank you.