Congressman Urges Fed to Review Hong Kong's Dollar Lifeline Access

Rep. John Moolenaar, chairman of the Select Committee on the Chinese Communist Party, has urged the Federal Reserve to review Hong Kong's access to a key dollar liquidity facility. In a letter obtained by CNBC, Moolenaar called on the Fed to reconsider the Hong Kong Monetary Authority's access to the Foreign and International Monetary Authorities Repo Facility (FIMA), which allows central banks to borrow dollars using their Treasury holdings as collateral.

The push comes as China seeks to promote the renminbi as an alternative to the dollar in global finance. Moolenaar highlighted Hong Kong's diminishing autonomy under Chinese control, arguing that the Fed should factor in this shift when evaluating access to the FIMA facility. He also noted that China has launched its own version of the FIMA facility, raising concerns about the potential copying of the U.S. system.

Experts, however, caution that limiting Hong Kong's access to the FIMA facility could pose risks. Eswar Prasad, an economics professor at Cornell University, argued that the facility actually bolsters the dollar's prominence and the role of U.S. Treasurys as a global safe asset. He suggested that restricting access would not strengthen the dollar's dominance.

The Fed has confirmed receipt of Moolenaar's letter and plans to respond. While Fed Chairman Kevin Warsh is unlikely to take immediate action, the letter underscores Congress's growing role in shaping China policy. The FIMA facility has seen limited use since its creation in 2020, with Hong Kong drawing up to $1.4 billion in May 2020 but not materially using it since.