- Moolenaar's letter asks the Fed to reconsider Hong Kong's access to the FIMA repo facility, which provides short-term dollar liquidity to foreign monetary authorities.
- Hong Kong has barely used the facility since 2020, so any restriction has small immediate financial impact, but economists warn it could reduce a mechanism reinforcing demand for dollars and Treasurys.
- China is promoting the renminbi globally and launched its own version of the FIMA facility in June, with Hong Kong as its first user.
- Fed Chair Kevin Warsh is unlikely to act in a way that interferes with China policy at a sensitive moment, according to Shehzad Qazi of China Beige Book.
Quotes
“The Federal Reserve's own facilities should not be a passive participant in that process, nor should the Chinese Communist Party be allowed to copy and paste the U.S. system for its use”
“the complete dismantling of the legal and institutional autonomy that has historically distinguished Hong Kong from mainland China and justified its preferential treatment under U.S. law”
“That said, this is an example of the novel ways Congress could begin asserting its role in China policy.”