The central banks of Japan and Hong Kong have announced plans to connect their financial systems in order to ease the process of cross-border settlement between Japanese government bonds (JGBs) and Hong Kong dollars.

Under the new arrangement, the Bank of Japan (BOJ) will link its BOJ-NET JGB services with the clearing system of Hong Kong Monetary Authority (HKMA) dubbed HKD CHATS.

The move will enable Japanese firms to use JGBs as collateral for procuring Hong Kong dollars.

Under the existing system, Japanese banks first swap the yen for US dollars and then use the US dollars to buy Hong Kong currency.

The two central banks expect to complete work on the new system by early 2021.

“Details such as go-live date will be made public in due course, depending on the progress in the preparatory work of BOJ and HKMA. BOJ will continue to work closely together with HKMA and relevant parties such as user financial institutions of BOJ-NET toward implementation,” the Japanese central bank said.

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