How does the "HKD-RMB Dual Counter Model" operate?

 

How does the "HKD-RMB Dual Counter Model" operate?

I can, however, provide you some details on the broad relationship between the Hong Kong Dollar (HKD) and the Chinese Renminbi (RMB).

The official currency of Hong Kong, a Special Administrative Region of China, is the Hong Kong Dollar (HKD). The official money of mainland China is the Chinese Renminbi (RMB). The two currencies are issued by different central banks, with the People's Bank of China issuing the RMB while three Hong Kong-based banks are authorised to issue the HKD.

Due to a mechanism known as the "Linked Exchange Rate System," the price of a dollar between the HKD and the RMB has traditionally been controlled within a certain range. The Hong Kong Monetary Authority (HKMA) fixes the HKD to the US dollar (USD) within a predetermined range under this method. Changes in the USD-RMB exchange rate consequently have an indirect impact on the HKD-RMB exchange rate.

I apologise for my lack of knowledge if the "HKD-RMB Dual Counter Method" is a more recent progress or a particular financial concept. To get the most recent information on any new financial models or developments pertaining to the HKD and RMB, it is advised to check the most recent financial sources or specialists.

To be clear, a "dual counter" financial arrangement is one in which two parties carry out a transaction using two different currencies. However, it is difficult to give a thorough explanation of what the "HKD-RMB Dual Counter Model" includes without more information regarding the context or source of this word.

If this idea has been proposed more recently, I advise examining current financial sources, speaking with subject-matter authorities, or doing further study to get the truth about the "HKD-RMB Dual Counter Model" and how it functions.

With the debut of the so-called dual counter system on Monday, investors will shortly be allowed to trade a select group of Hong Kong stocks in both the dollars of Hong Kong and the Chinese yuan.

To enable investors in Hong Kong to engage in trade in the yuan as a supplement to the Hong Kong cash, the newly released "HKD-RMB Dual Counter Model" is scheduled to have an initial 24 enterprises start offering yuan counters. Heavy hitters in technology like Tencent, Alibaba, and Baidu are among the companies on the list.

Only securities listed in the Hong Kong dollar and renminbi counters are covered by the dual counter model. Nicolas Aguzin, CEO of Hong Kong Exchanges and Clearing, stated in an exclusive interview on CNBC's "Squawk Box Asia" that the decision was made to provide investors with more investment options and opportunities for diversification.

"This programme is focused on giving investors more options, which is our priority number one. The second is that we keep working to internationalise the renminbi. Third, he said that it "solidifies" Hong Kong's position as a centre for yuan trading.

The original group of 24 companies, according to the HKEX CEO, account for around 40% of Hong Kong's daily average trading volume.

We would anticipate that to keep growing," he continued. And eventually, I believe a sizable proportion of the stocks on our exchanges will be taking part in this programme.

Aguzin stated he anticipates an increase in turnover from the new dual link model, adding there are "a lot" of yuan deposits in Hong Kong, despite trading volumes in Hong Kong being at a four-year low. The major goal, according to Aguzin, is to make it easier for investments to flow south from the mainland.

The Southbound Stock Connect, which enables mainland investors to acquire Hong Kong equities in Hong Kong dollars, is the current platform used for investments from the mainland.

With the help of exchanges and clearing houses in their home markets, Stock Connect enables investors in mainland China to transact and settle shares in Hong Kong and vice versa.

According to Aguzin, it's "very difficult for the mainland financiers, [and] the fact obviously they will [now] be able to transact in a matter of moments basis in renminbi, that's a huge difference."

He anticipates a rise in mainland investment, particularly from retail investors.

"Hong Kong's population of only 7 million people is one of its problems. Therefore, there is very little retail available. But the mainland has 1.4 billion people, which is a sizable number. And a lot of that can come through Stock Connect, which will enhance our market's liquidity.

Initially catering to investors using offshore yuan, the dual counter concept will eventually allow mainland investors to trade yuan equities listed in Hong Kong using onshore yuan, according to Reuters.

The dual counter model will not be accessible to investments made through Stock Connect until a specific date, but according to Aguzin, this will take some time. The HKEX is coordinating closely with regulators and other stakeholders to ensure that everything is in place before making an announcement.

Not our first attempt

In Hong Kong, this is not the first time that a similar programme has been implemented.

The "dual tranche, dual counter" approach, which allowed the issuer to sell and list two payments of shares in both the dollars of Hong Kong and Chinese yuan, was introduced by the Hong Kong trade in 2012.

Shares of the HKD and RMB tranches constituted of the same class, similar to the dual counter type used today, and stockholders under these two tranches should receive the same treatment.