Offshore use of currency: Hong Kong’s experience

This paper discusses a number of issues related to the circulation of Hong Kong dollars (HKD) outside Hong Kong. These include potential benefits and concerns for Hong Kong, and factors contributing to the external demand for HKD. The paper also provides empirical estimates of the likely holdings of HKD outside Hong Kong. Our estimates suggest that some 15-25% of the total outstanding stock of HKD may be held outside Hong Kong. In particular, the demand for HKD in mainland China appears to have increased in recent years, reflecting greater socio-economic integration and the non-convertibility of the renminbi as well as some relaxation of the foreign exchange transaction rules by the mainland authorities. The paper is organised as follows. The next section outlines the implications of HKD circulation outside Hong Kong, including the potential benefits and concerns for Hong Kong. Section 3 examines the factors that have contributed to the external demand. Section 4 provides some estimates of the likely size of the external holdings of HKD, including a review of other studies in this area. The final section concludes.