Cross-border repo scheme for the yuan gets maiden voyage

HONG KONG Wed Dec 5, 2012 9:32pm EST

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HONG KONG Dec 6 (Reuters) - A cross-border repo scheme aimed at promoting the internationalisation of the yuan has been used for the first time, with UBS AG and HSBC Holdings Plc the first foreign institutions to give it a go.

The tri-party repo scheme, established in June, allows global financial institutions to use securities held with Euroclear Bank or JPMorgan as collateral to access yuan liquidity from the Central Moneymarkets Unit of the Hong Kong Monetary Authority, the city's de facto central bank.

Beijing has been slowly but steadily moving to internationalise the yuan and global interest has soared in the past few years as more countries and companies dip their toes into settling trades with the Chinese currency.

Hong Kong, the largest offshore yuan centre, had a yuan deposit pool of 554.8 billion yuan ($89 billion) as of the end of October. Daily turnover in its yuan settlement system, has surged as much as two-thirds since June to 250 billion yuan per day.

The deal was conducted between UBS' London office and HSBC's Hong Kong branch, Euroclear said in a statement.

HSBC estimates the level of yuan deposits in Hong Kong will increase to 30 percent of all Hong Kong deposits by the end of 2015 from the current 9 percent.

"Firms that manage these growing RMB reserves will naturally seek to optimise their cash balances through the repo markets with an international counterparty base," said Justin Chan, HSBC's deputy head of global markets in Asia Pacific.

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