Damon Sou, a Hongkonger who likes to visit Shenzhen for the weekend, gave HK$100 to a supermarket cashier to pay for 35 yuan worth of goods. He expected to get 65 yuan back in change.

 

To Sou's surprise, all he received was a polite reply from the cashier: "Sorry, we don't accept Hong Kong dollars anymore. If you insist on paying with dollars we'll give you dollars or yuan based on the latest exchange rate."

 

Sou was one of many Hongkongers who found themselves caught out by the exchange rate of their home currency and an appreciating yuan, which declined from 1:1 to 1:0.97 or lower on the local market recently.

 

From October, merchants from industries such as logistics, service, retail and wholesale across the Pearl River Delta began to turn down the Hong Kong dollar as the yuan continued its surge. Some of them even started "throwing out" their dollars.

 

As "the second currency next to the yuan" in South China, the Hong Kong dollar was widely accepted and used by local merchants and residents, especially in the Pearl River Delta.

 

According to recent figures released by the Hong Kong Monetary Authority, around HK$70 to HK$100 billion worth of Hong Kong cash is now being circulated in South China.

 

"However, we expect Hong Kong notes to gradually flow back to Hong Kong as the yuan's value continues to rise," said Yin Huping, a financial adviser with Bank of China (Shenzhen).

 

"If the appreciation (of the yuan) goes on as expected, we suggest that both merchants and individuals keep the dollars they need and change the remainder into yuan."

 

Allan Cheng, an expatriate real estate manager from Hong Kong, agreed with Yin. He told China Daily that he was considering changing some dollars into yuan.

 

"I would also prefer to get paid by yuan instead of Hong Kong dollars later if possible," Cheng added. Having been working in Shenzhen for eight years, Cheng used to get his salary in dollars.

 

(China Daily January 19, 2007)