Hong Kong to link central bank system with Japan for faster cross-border transactions

These will streamline transactions of Japanese government bonds and Hong Kong dollars.

Japan and Hong Kong are set to link their respective banking systems to streamline cross-border transactions denominated in their respective currencies.

Bank of Japan and the Hong Kong Monetary Authority are in talks about the development of a framework that enables delivery versus payment (DVP) for cross-border transactions of Japanese government bonds and Hong Kong dollars, according to a statement released by the BoJ.

BoJ will start preparing for the implementation of cross-border DVP link in the fiscal year 2018 by linking BoJ-NET (Bank of Japan Financial Network System) JGB Services with HKD CHATS (Hong Kong dollar Clearing House Automated Transfer System) 2.

It will allow Japanese financial institutions to procure Hong Kong dollars with JGBs as collateral through the central bank network and give Hong Kong financial institutions a platform to invest short-term excess funds, according to Reuters.

Currently, most Japanese banks operating in Hong Kong procure funds by exchanging the yen for U.S. dollars, and then use the U.S. currency to purchase Hong Kong dollars. Once the new system kicks in, the Japanese banks will be able to procure Hong Kong dollars without having to pay the cost of exchanging yen for the greenback.

The link is set to be implemented around the spring of 2021, BoJ added.