House China committee chair urges Fed to review Hong Kong's access to dollar lifeline

• The FIMA facility allows central banks to borrow dollars using U.S. Treasurys as collateral; Hong Kong drew up to $1.4 billion in May 2020 but hasn't materially used it since
• China is using Hong Kong as a laboratory for building alternative financial architecture, including launching its own version of FIMA in June with Hong Kong as its first user
• Economists warn that restricting access could backfire by reducing mechanisms that reinforce dollar demand and Treasury appeal, potentially undermining rather than protecting dollar dominance

Summary: House China Committee Urges Fed to Review Hong Kong's Dollar Access

House Select Committee on the Chinese Communist Party Chairman John Moolenaar (R-Mich.) is pressuring the Federal Reserve to reconsider Hong Kong's access to the FIMA (Foreign and International Monetary Authorities) repo facility, which provides short-term dollar liquidity to foreign monetary authorities.

Key Context

The FIMA facility, established during COVID-19 in 2020, allows central banks to borrow dollars from the Fed using U.S. Treasury holdings as collateral. Hong Kong drew up to $1.4 billion in May 2020 but has barely used it since, making immediate financial impact of any restriction minimal.

Rationale for Review

Moolenaar cites two main concerns:

• China's erosion of Hong Kong's legal and institutional autonomy, undermining its historical distinction from mainland China
• Beijing's aggressive push to promote the renminbi as an alternative to the dollar, including launching its own FIMA-like facility in June, with Hong Kong as its first user in July

Market Implications

The U.S. dollar maintains dominant reserve currency status at 56.7% of global central bank reserves, while the renminbi represents only 2.1%. However, economists warn that restricting Hong Kong's access could be counterproductive. Cornell professor Eswar Prasad notes the FIMA facility actually "increases the prominence of the dollar in global finance" and reinforces demand for U.S. Treasurys.

Fed Chairman Kevin Warsh is unlikely to act during sensitive U.S.-China negotiations, which remain in a "very tenuous truce." Treasury Secretary Scott Bessent recently encouraged Japan to use the facility. The Fed confirmed receipt of Moolenaar's letter and plans to respond, though no timeline was provided.