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

• Hong Kong has barely used the FIMA facility since drawing up to $1.4 billion in May 2020, making the immediate financial impact of any restriction relatively small
• China's renminbi currently represents only 2.1% of global reserve holdings compared to the dollar's 56.7%, but Beijing launched its own version of FIMA in June with Hong Kong as its first user
• Economists warn that restricting Hong Kong's access could backfire by reducing mechanisms that reinforce demand for dollars and U.S. Treasurys, potentially undermining rather than bolstering dollar dominance

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

Rep. John Moolenaar (R-Mich.), chairman of the House Select Committee on the Chinese Communist Party, is urging the Federal Reserve to review Hong Kong's access to the FIMA (Foreign and International Monetary Authorities) repo facility. This facility allows central banks to borrow dollars from the Fed using Treasury holdings as collateral, established during COVID-19 to provide emergency dollar liquidity without forcing asset sales.

Key Details:

• Hong Kong drew up to $1.4 billion from the facility in May 2020 but has barely used it since
• The FIMA facility currently shows no active usage as of the letter's date
• The dollar comprises 56.7% of global central bank reserves, while China's renminbi represents just 2.1%

Rationale for Review:

Moolenaar cites the "complete dismantling" of Hong Kong's legal and institutional autonomy from mainland China, arguing this erodes justification for preferential treatment. The request coincides with China's aggressive promotion of the renminbi and expansion of Hong Kong's role in creating an alternative global financial architecture. China launched its own FIMA-style facility in June, with Hong Kong as its first user.

Market Implications:

Economists warn that restricting Hong Kong's access could backfire. Cornell professor Eswar Prasad notes the facility actually "increases the prominence of the dollar in global finance" and reinforces demand for U.S. Treasurys. Fed Chairman Kevin Warsh is considered unlikely to take action during the "very tenuous truce" between the U.S. and China. The immediate financial impact would be minimal given Hong Kong's limited usage, though the geopolitical implications could be significant.