Rep. John Moolenaar, chairman of the Select Committee on the Chinese Communist Party, has sent a letter to the Federal Reserve advocating for a review of the Hong Kong Monetary Authority's access to the Foreign and International Monetary Authorities Repo Facility (FIMA).
This facility allows central banks to borrow dollars from the Fed using their Treasury holdings as collateral, intended to provide liquidity during crises without necessitating the sale of Treasurys.
Moolenaar's request comes amid China's efforts to promote the renminbi as a global alternative to the dollar, raising concerns about the implications of Hong Kong's changing status under Chinese control.
While the Fed has received the letter and plans to respond, analysts like Shehzad Qazi from China Beige Book suggest that Fed Chairman Kevin Warsh is unlikely to act in a way that could be perceived as interfering with U.S.-China relations at this sensitive time.
The dollar remains the dominant global reserve currency, comprising 56.7% of central banks' reserves, while the renminbi accounts for only 2.1%. Moolenaar argues that the Fed should consider the loss of Hong Kong's legal and institutional autonomy when evaluating its access to dollar liquidity.
However, some experts, including Eswar Prasad from Cornell University, caution that restricting access to FIMA could inadvertently diminish the dollar's prominence rather than enhance it. The Fed's protective measures, including FIMA, are seen as crucial for maintaining the dollar's appeal among global investors, especially in light of uncertainties surrounding investments in China.
Currently, Hong Kong has not utilized the FIMA facility significantly since its initial draw of $1.4 billion in May 2020, and Moolenaar believes that the modest financial stakes present an opportunity for a deliberate review rather than a reactive response