Hong Kong Monetary Authority

The Real Time Gross Settlement (RTGS) payment system for US dollars launched on the 21 August has today (25 September) been linked up with the RTGS payment system for Hong Kong dollars to provide payment versus payment (PvP) settlement for foreign exchange transactions between US dollars and Hong Kong dollars. This completes phase two of the implementation of Hong Kong's US dollar payment system.

Twelve foreign exchange transactions between US dollars and HK dollars were settled on a PvP basis today. The banks involved in these US dollar/Hong Kong dollar PvP transactions can enjoy the assurance that the currency bought was received at the same time when the currency sold was paid to the counterparty concerned.

Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority (HKMA), said, "Hong Kong has today set a world record by carrying out the first foreign exchange PvP transaction in financial history. The PvP transaction allows the settlement of US dollar transactions real time in the Asian time zone against the delivery of Hong Kong dollars, thereby entirely eliminating the Herstatt risk that would otherwise have arisen from the settlement more than 12 hours later in New York time zone".

"The HKMA is very pleased to be a pioneer in implementing PvP. We have had tremendous support from the financial community as we embarked in recent years to upgrade the financial infrastructure in Hong Kong to enhance risk management and promote business opportunities. Our financial community can be proud of this achievement for Hong Kong," he added.

The RTGS payment system for US dollars has been well received by the financial community in Hong Kong. In the past one month (21 August - 25 September), altogether 41,791 US dollars transactions were settled in a real time mode under the system, involving a total value of US$35.6 billion. On average, 1,672 transactions involving US$1.4 billion were settled daily during this period. Reflecting increasing acceptability and growing throughput, the daily turnover value has increased from around US$700 to 800 million initially to between US$1 to 2 billion more recently.

Phase three, covering US dollar paper cheque clearing and the RTGS interface with the Central Moneymarkets Unit (CMU) for settling US dollar denominated debt securities, will be launched before Christmas. Customers can therefore open US dollar current accounts with banks in Hong Kong, with the settlement cycle shortened to next-day settlement compared with the current two-week period. The RTGS/CMU interface allows delivery versus payment (DvP) settlement of US dollar denominated debt securities in the CMU and also enables automatic intraday repos for the RTGS system.

Attached is a diagram showing how a PvP deal is settled in Hong Kong.

For further enquiries, please contact:

Thomas Chan, Senior Manager (Press), at 2878 1480 or
Caitlin Wong, Manager (Press), at 2878 1687

Hong Kong Monetary Authority

25 September 2000

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