By Grant Chum of UBS

You might expect Hong Kong to be delighted with its central role in the internationalisation of the renminbi.  The metrics have indeed been impressive: since mid-2010 RMB deposits have grown five-fold, to about 8 per cent of Hong Kong’s deposit base; monthly RMB trade settlements in the city have grown 13-fold over the same period and account for almost 90 per cent of China’s cross-border RMB trade settlements; the so-called dim-sum bond market has gone from zero to a US$15bn market in less than a year.

Yet it is also increasingly apparent that the rapid development of an offshore RMB market also poses an insidious threat to the stability of Hong Kong’s financial economy and its cherished peg to the US dollar. Continue reading »