John Moolenaar, chairman of the House Select Committee on the Chinese Communist Party, is urging the Federal Reserve to review Hong Kong's access to emergency dollar liquidity, having sent a letter to the Fed last week asking it to reconsider the Hong Kong Monetary Authority's status in accessing the Foreign and International Monetary Authorities Repo Facility, or FIMA Repo Facility. The mechanism gives foreign central banks and monetary authorities access to short-term dollars from the Fed using US Treasury securities as collateral, and was established in 2020 during the market turmoil caused by COVID-19. The move comes amid concerns that China is accelerating efforts to push the yuan into a bigger role in the global financial system, with Hong Kong serving as a key hub for that strategy. Data from the International Monetary Fund shows the dollar accounts for 56.7% of the official foreign currency reserves of central banks worldwide, while the yuan accounts for only 2.1%. Last June, China's central bank launched a mechanism similar to the Fed's FIMA, with Hong Kong the first user of that facility. However, economists warn that stripping Hong Kong of FIMA access could backfire on what the United States wants. Eswar Prasad, an economics professor at Cornell University, said FIMA helps enhance the importance of the dollar and US Treasury bonds as global safe-haven assets, while the short-term financial impact may be limited, since Hong Kong once drew a maximum of about 1.4 billion dollars in liquidity from the mechanism in May 2020 and has not used it at any significant level since. The Fed's latest data shows no foreign monetary authority is currently using FIMA.
US pressure to review Hong Kong's FIMA access amid China's yuan-internationalization push signals a policy-driven dollar-vs-yuan dynamic.
