Author: Titan Stone Group
Financial centers play a pivotal role in the economic development of a country or region. A country with active foreign exchange, stock, futures and securities trading markets, and the introduction of many multinational companies and international banking headquarters, that is be called a financial center. According to the latest Global Financial Centres Index (GFCI) rankings, New York, London, and Hong Kong are listed the top three, and these three cities are representatives of financial centers in North America, Europe and Asia Pacific.
However, it is worth noting that in recent years, international funds have been continuously transferred to Southeast Asia, and ASEAN will become the center of the next world economic development. So, where is the financial center of ASEAN the core area of the future?
Free economy, dollar trading, no exchange control, all elements made Hong Kong the Asia Pacific financial center.
Hong Kong has a small area with small number of population. Why Hong Kong be the Asia Pacific financial center? Let us dates back to the 19th century. In 1841, Hong Kong became a free trade region. There was no tariff on goods except some goods are required visa processing procedures based on health and safety rules. Compared with other regions of Asia, Hong Kong has implemented an economic open policy at early stage. It’s Due to superior geographical location and environment, Hong Kong has become a transit and trade shipping center, with the thriving of commerce and manufacturing.
Active business activities push stock market heat up. In 1892, the first Hong Kong Brokers Association (previous Hong Kong Stock Exchange) was established. From 1940-1960, the change of world trade environment made Hong Kong turn into focus on financial service.
However, after the transition, Hong Kong was faced the problem of large fluctuations in the currency exchange rates of various countries and serious damage to the financial system. Therefore, on February 14, 1973, the Hong Kong government decided to use the fixed exchange rate of the Hong Kong dollar and the US dollar, and also eliminated foreign exchange controls in the year. The monetary policy and the abolition of foreign exchange controls bound to the US dollar drastically reduced the exchange rate and investment risk of foreign investors, and attracted a large amount of international funds into Hong Kong which making the GDP growth rate as high as 12.3%. At the same time, there was another problem. Due to speculation, the exchange rate continued to fall, causing the Hong Kong dollar to be in danger. Therefore, in 1983, the Hong Kong government introduced a linked exchange rate system, 100% foreign exchange reserve guarantee, and officially established the Hong Kong dollar and US dollar linked policy at an exchange rate of 7.75-7.85 yuan to 1 US dollar, and it has continued to this day.
Since the open free economy and the monetary policy of the dollar and the foreign exchange-free fiscal policy, Hong Kong has gradually became to the financial center since 1983. According to the United Nations Trade Development Association's World Investment Report, the amount of foreign direct investment received by Hong Kong since 2002 has ranked second in Asia, followed to China’s mainland. In 2017, Hong Kong's GDP was increased more than 10 times that of 1983, and the Hong Kong Hang Seng Index also climbing all the way. Over years, the economic performance performed by Hong Kong made Hong Kong Asian financial center until nowadays.
Hong Kong’s Performance for years
Hong Kong Hang Seng Index for years
The Importance of dollars circulation.
Among the international currencies, the dollar has the highest circulation rate. According to Susan Strange, an international political economist, the currency is divided according to its function. The US dollar is at the top of the four levels, and is the first choice in the world in terms of circulation or use. And the US dollar is more stable than other currencies, and the US dollar is also the currency with the largest foreign exchange reserves.
According to the International Monetary Fund (IMF) report, in 2018 quarter 4, US dollars accounted for 61.69% of the global foreign exchange reserves, reaching 661.8 billion US dollars, and its stock is 3 times as the euro, 11 times as the yen, and 32 times as the yuan.
Global Currency Exchange Reserves
The US dollar is a highly accepted as international trading currency, when a country's currency is linked to the US dollar, it can reduce the financial risks caused by the exchange rate in the region then maintain its capital market stability, and prevent inflation from jeopardizing the national economy and people's lives.
In addition, the circulation of the US dollar to the local market can effectively eliminate the increased transaction costs due to exchanges, increase the competitiveness of enterprises, create a stable investment environment for foreign investors, promote the integration of enterprises with the international market, and promote trade, investment and economic activities in the country.
Small country’s currency is not so powerful.
Because of their strong economic strength, big countries can regulate their economy and finance through currency. In contrast, because of the small countries do not have enough funds to carry out effective monetary policy, their currencies cannot compete with the big countries' currencies in the international market. The currency rises and falls is determined by the exchange rate of the powerful countries.
Numerous wealthy enterprises in America. Take FAANG for example, Amazon and Apple’s value is higher than the total GDP of Saudi Arabia and Turkey. By comparison, these enterprises use dollars for settlement worldwide, thus the influence of dollars has been stressed. Among these currencies, only the US dollar and the euro are the most favored. They account for 82% of the global currency. Other G20 countries have not been widely circulated in the world financial trade market, let leave alone countries with weak economic strength.
The weak position of currency has made it impossible for the government to effectively use monetary policy to regulate the economy and stabilize prices. In addition, if it fails to linked with a currency which is highly acceptable such as the US dollar, another choice is allows the US dollar to circulate freely, when the government's fiscal measures are improper, it will cause the national economy to fall down. For example, Venezuela’s improper fiscal and monetary policy has caused the country’s currency, Bolivar, to plunge and inflation severely. The IMF estimates that the country’s inflation in 2018 is as high as 10 million. It used to be the country with the highest GDP per capita in Latin America. Today, millions of people have fled to other countries to stay away from food shortages, and the country has been defeated almost.
Cambodia- the most open country in foreign capital.
Cambodia knows that well so the country is open to foreign investment, the Asian New Tiger-Cambodia. Economic openness is vital element for the country to promote the economy. Except that Hong Kong has been open for many years and Cambodia is ranked among the top three as financial centers in the world.
Most countries restrict foreign investment in the local area, and require that their shareholding ratio in the company should not exceed standard. For example, Malaysia, Vietnam, etc., all have foreign capital limitation like that foreigner cannot hold more than 50% of the company's shares. Even in countries foreign investment can be 100% owned, such as Thailand, but not all industries are able to invest. The restriction on the proportion of shares held allows foreign-invested enterprises to take the risk of the company's management rights limited, and also greatly limits its financial operations and development in the country.
In Cambodia, in addition to the purchase of land, foreign investors or legal representative can hold 100% shares of companies in any industry. In addition, Cambodia has no foreign exchange controls, funds can circulate freely, and enterprises can carry out financial operations flexibly, which helps enterprises to less their risks and increase their competitiveness. In addition, Cambodia adopts the US dollar and Riel dual currency system. The US dollar accounts for 84% of its broad money rate (M2), and domestic transactions are denominated in US dollars. The high circulation of the US dollar reduces exchange risk, coupled with the strong position of the US dollar between international currencies. Holding US dollar or US dollar assets helps to preserve assets.
Benefiting from the opening up of foreign policy, a large amount of international capital entered Cambodia to promote the rapid development of Cambodia's economy. In recent years, the amount of foreign direct investment (FDI) has grown rapidly, and the amount of FDI in 2017 has increased by 12% from the previous year. In 2010-2017, Cambodia's average GDP growth rate exceeded 7%. According to the Cambodian central bank, the country’s economic growth rate was 7.3% in 2018, exceeding the World Bank’s and IMF estimates. The IMF predicts that its GDP growth rate will reach 7% in 2019. At a time when the global economic situation is tense and major international institutions are downgrading their economic performance forecasts, Cambodia is still growing strongly and is accepted by many investors.
Cambodia GDP in years
Cambodia FDI flows in years
Cambodia- The first country for support RMB internationalization.
Cambodia is China's most friendly and close ally, and it is also a key country who participate in the Belt and Road. China has assisted Cambodia in building numerous infrastructures while encouraging domestic companies to invest in Cambodia. In 2017, China replaced Vietnam and became the largest investor in Cambodia. Because of the friendly relations between the two countries and close economic cooperation, Cambodia has expressed its support for the internationalization of the RMB in the RMB business forum of the ASEAN Economic and RMB Internationalization Outlook. The Cambodian National Bank also supports the use of the RMB in the banking system. At present, excluded Commercial Bank of China, Industrial and Commercial Bank of China, 13 local commercial banks will also follow up to start RMB business.
Cambodia is at the core of the Indo-China Peninsula, next to the Gulf of Siam. In the future of the Kela Canal will canalized, and Cambodia will become an important base for the 21st Century Maritime Silk Road. The Pan-Asia Railway will be opened to traffic, which will link with people logistics and capital between China and the Indo-China Peninsula. The Cambodian capital Phnom Penh located in the center of the Trans-Asian Railway. Multinational talents, merchandise and funds will be gathered here and transferred to other countries. Its importance to the economic development of the Southeast Asian region is self-evident. Cambodia's support for the renminbi has made it the first country for the future internationalization of the renminbi, and the renminbi will also enlarge its influence in Southeast Asian due to Cambodia.
Phnom Penh will exceed Bangkok and Ho Chi Ming City in 10 years, to become the financial center of Southeast Asia.
Since last year, due to the global economic development shrinks, the economic growth of most countries in Southeast Asia has changed, they are facing the crisis of currency depreciation and economic recession. For example, the Thai baht was smashed in May-June 2018, with a volatility rate of 6%. The Vietnamese dong against the US dollar also fell in August last year, depreciating to a 3% reference exchange rate fluctuation range for two consecutive weeks. Even if the currency rebounds quickly, too much volatility has already impacted the market. The World Bank also alert emerging economies such as China, Indonesia, Malaysia, the Philippines and Thailand at the beginning of this year that there may be capital outflows, currency depreciation, stock market movements, and a decline in foreign exchange reserves. The unstable global economy casts a shadow over the future of the financial and economic markets of Bangkok and Ho Chi Ming City.
On the contrary, Cambodia's economic performance is not bad, and a large amount of foreign capital has flowed in. In 2018, the number of new company’s registrations increased by 200% compared with the previous year, and it has grown against the global economic downturn.
Phnom Penh is the capital of Cambodia and a political, economic and cultural center. 85% of the country's business activities are concentrated here. The government is open to free economic policies, highly dollar accepted, and has no foreign exchange controls. In the future, international funds will continue to flood into Phnom Penh. Within 10 years, Phnom Penh's trade and financial transactions will surpass Bangkok and Ho Chi Minh City, then Phnom Penh is becoming a developed and active financial center in Southeast Asia, and own an indispensable position in the economic development of ASEAN countries.
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