The central banks of Japan and Hong Kong are interconnecting their systems to support faster cross-border payments and trade between the two markets, according to Reuters reports on Tuesday (April 10).
The Bank of Japan announced the plans that reports said may be the first of their kind by any central bank. The integration means transactions that occur in each market’s respective currencies can be settled immediately: The Bank of Japan and the Hong Kong Monetary Authority (HKMA) will enable real-time settlement of Japanese government bonds and Hong Kong dollars.
For Japanese financial institutions (FIs), the procurement of Hong Kong dollars can occur using Japanese government bonds as collateral; FIs in Hong Kong can invest in short-term excess funds, reports added.
At present, FIs in Japan that do business in Hong Kong typically exchange yen for U.S. dollars, which are then used to purchase Hong Kong dollars. The direct integration between the two central banks means institutions will no longer have to pay excess conversion fees.
The Bank of Japan said it hopes to launch the interconnected system by the spring of 2021.
Last year, the Hong Kong Monetary Authority announced a separate initiative to connect with the Monetary Authority of Singapore, using blockchain technology to facilitate cross-border payments and trade between the two markets. HKMA Head Norman Chan said at the time that this, too, was likely the first collaboration of its kind to use blockchain to facilitate trade finance across borders.
It appears the Bank of Japan is looking at more traditional technology to connect with Hong Kong, however.
Last year, the Bank of Japan’s Head, Hiromi Yamaoka, said cash is still a long way from disappearing, while Japan has also become one of the most critical markets for cryptocurrency exchanges. Last month, the nation asked its fellow G20 members to enhance their fight against crypto-fueled money laundering, raising concerns that other nations may be too lenient on digital token and cryptocurrency regulations.