the concern comes when price deflation, as part of the adjustment process under the link, turns into the kind of spiralling deflation that inhibits investment and fuels recession. at present, and despite nearly three years of steady price deflation, this does not appear to be happening. indeed, the experience last year of robust growth and moderate price decline underlines the point that price deflation and economic expansion are quite compatible under a linked exchange rate system. i have tried to place these complaints about the link in a larger perspective. that is not to deny that the complaints have some validity. the link does have shortcomings. it does impose restrictions. we should all have the courage to speak of and accept them, while not overlooking the advantages of the system. and there are two clear and simple advantages of overriding importance for hong kong. a stable exchange rate provides a predictable and conducive business environment for an economy that imports practically everything that it consumes, processes or re - exports. and, for a financial centre with strong international capital flows but no capital controls, linking our currency to a strong international currency provides stability and strength. although not perfect, the link has served hong kong well, and there is no better and less risky alternative. there is no intention or plan to change or abandon it. given the renewed interest in the subject, and for the sceptics who remain, let me go the extra mile here for their benefit. let me tackle the question of what would happen if hong kong were to depeg. within the hkma we think of this a great deal. this is not because we expect or intend it to happen. it is because any responsible central banking institution must have an idea of what conditions might be like under an alternative system - if only to clarify its understanding of, and justify its adherence to, the present system. and any organisation must have contingency plans to deal with the unexpected and the unintended. we do not, of course, make public our contingency plans, though we do, as i have mentioned earlier, make public a great deal of research carried out within the hkma or under our auspices on issues surrounding the link. what, then, might happen if hong kong were to depeg? the answers would, of course, depend on what monetary policy was adopted in its place. it would also depend on domestic, and particularly external, conditions at the time. the outcome could, i think, even

suit. two weeks ago, the guangdong provincial government issued its first offshore rmb bond in hong kong, a much - welcomed addition to the list of local government issuers such as shenzhen and hainan. together with cmof bonds, these official - sector issuances provide much - needed benchmark yield curves that can be referenced by the market. earlier this week, the hkma co - hosted an industry event with the national development and reform commission to facilitate mainland corporates to issue bonds in hong kong. all these efforts will promote the development of a vibrant and sustainable dim sum bond market in hong kong. in the foreign exchange market, it is encouraging to see the continued growth of rmbrelated activities in hong kong. according to the tma's semi - annual surveys, the us dollar and rmb have consistently been the most traded currency pair in our fx market. the total value of fx transactions involving the rmb in april 2024 more than doubled year on year. in terms of risk management products, good progress has been made as well. the swap connect commenced operation in 2023. earlier this year, the hkma accepted onshore cmof and policy bank bonds as collateral for obtaining rmb liquidity. this has opened a tremendous window to explore other possibilities for investors to put their onshore bond holdings to more productive use, including efficiency enhancement and obtaining liquidity. there are other rmb - related risk management products in the pipeline, and we look forward to the early opportunity of the product launch. infrastructure the unsung hero behind the more visible business of liquidity or products is hong kong's robust rmb infrastructure that provides the highly efficient and reliable plumbing in handling vast volumes of rmb flows, including 80 % of global offshore rmb transactions. infrastructure enhancement is critical to maintaining our hub status. one important initiative is the upgrading of the central moneymarkets unit ( cmu ), which is a key platform for the lodging of dim sum bonds and the smooth functioning of bond connect. 3 / 4 bis - central bankers'speeches to achieve our vision of transforming the cmu into an icsd ( international central securities depository ), the system upgrade is in full swing. its business model and product offerings are also undergoing a major revamp to make its operation more commercialised, customer - oriented and market - based. another ground - breaking initiative is project mbridge, which is a multi - central bank digital currency ( cbdc ) platform shared among participating central