China’s recent announcement of new measures to relax currency controls on the yuan brings Beijing a step closer to internationalizing the currency, and further bolsters Hong Kong’s future as a global financial center. The first measure allows five major Chinese cities to trade and settle through their counterparts in Hong Kong in yuan (also known as renminbi, or RMB). The second measure allows HSBC and Bank of East Asia to issue RMB bonds offshore in Hong Kong. The Bank of East Asia, issuing 1 billion yuan in bonds with a coupon of 2.8% to retail investors, reflects the appetite for exposure to the yuan and confidence it will appreciate against the Hong Kong dollar.

The Hamon Investment Team believes that such steps, known as the Yuan Trade Settlement Scheme (YTSS), will do much to promote trade, finance, and liquidity in Asia, and reduce China’s dependency on the U.S. dollar. It also broadens China’s economic liberalization and will help in the modernization of its infrastructure.

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The preceding information is based upon the analysis of historical performance of various asset classes and assumptions with respect to future economic conditions. Past performance is not an indication of future results. This information is not intended to provide specific advice, recommendations or projected returns of any particular BNY Mellon Asset Management product.