HSBC hopes eventually to win business in local currency
The Hong Kong and London-based banking giant has become only the second foreign bank to be given permission to deal direct with the public in China.
Earlier this month, US-based Citibank won the first licence to carry out foreign currency transactions in Mainland China.
Now, HSBC has been granted a licence to offer foreign currency services in Beijing and Shanghai.
"With this new licence HSBC will be able to provide foreign currency services to mainland Chinese citizens and companies," said HSBC chairman David Eldon.
High hopes
Chinese households have about $90bn of savings in foreign currency.
China promised to allow foreign banks to conduct foreign currency business with locals after it joined the World Trade Organisation (WTO) in December.
But the real goal is the $1.5 trillion in yuan savings.
Foreign banks will permitted to carry out yuan-denominated business in 2004, two years after China's WTO accession.
Service focus
Foreign banks hope to compete with domestic banks by offering a more westernised approach to service.
Service in some traditional Chinese banks is notoriously slow, bureaucratic and frustrating.
But Chinese banks are also doing their best to fight back against foreign competition and become more modern.
Tens and thousands of jobs have been already been cut as China seeks to streamline its banking industry.