Single currency use would ease real interest disparities in GBA – Economist

Establishing single currency use within the Greater Bay Area would ease some of the real interest disparities between the region, economics professor at the University of Saint Joseph (USJ) School of Business and Law, Florence Lei, told Macau News Agency (MNA).

The researcher held a presentation today concerning financial integration in the Greater Bay Area, organised by the France Macau Chamber of Commerce.

With the GBA currently divided into RMB, HKD and MOP regions, research carried out by Lei showed interest disparity between Mainland China and Macau and between the mainland and Hong Kong, but not between Macau and Hong Kong, due to the different exchange rate regions.

Uncovered interest rate parity theory states that the difference in interest rates between two countries or regions will equal the relative change in currency foreign exchange rates over the same period.

Bilateral trade agreements in recent years between the mainland the two SARs such as Closer Economic Partnership Arrangement (CEPA) has helped ease some of the purchasing power disparity, Lei noted, however establishing a single currency would, of course, further deepen financial integration.

Still establishing a European Union-style common market based on a single currency would still be a complex proposition, with many questions remaining also concerning the possible future introduction of a centralised digital RMB in Macau and Hong Kong, and its impact on the economies of both SARs.

Chief Executive Ho Iat Seng recently announced that local monetary authorities would be evaluating the possibility of advancing legislation that could allow for a centralised digital yuan to be used in the SAR.

Mainland authorities have started to conduct research in the introduction of a centralised digital currency in the past four years, with pilot tests carried in many cities, including Beijing, Shenzhen and Suzhou since 2020.

A People’s Bank of China also revealed that joint works were ongoing with the Hong Kong Monetary Authority (HKMA) on the technical testing of using the digital yuan for cross-border payments on the Chinese mainland and Hong Kong.

For Professor Lei the main question was if after the digital RMB is introduced, digital or fiat versions of the MOP and the HKD will still be in use in the SARs, and the market reception to the digital RMB.

“When the digital RMB is implemented, paper money will still be circulating, everything is still under the planning stage. If the digital RMB is implemented AND paper MOP will still be in use, this would change the results,” Lei noted.

The economics professor also noted the adoption of digital currencies is still in an experimental phase and will rely on the widespread use of mobile payment technologies and the interest of consumers in using digital payments.