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Analysis: RMB offshore market may expand to other regions following Hong Kong

Thursday, April 21, 2011 4:01 AM


BEIJING, Apr. 21, 2011 (Xinhua News Agency) -- Singapore and London are expected to develop the RMB offshore market amid China's fast economic growth and expectations for appreciation of the RMB.

The People's Bank of China (OOTC:BACHY) (PBOC) is to designate a Chinese bank in Singapore to undertake the clearing of RMB trade, Singaporean media Business Times quoted Singapore's Senior Minister Goh Chok Tong as saying recently. Singapore has also agreed to bestow clearing bank status on the designated Chinese bank, said Goh.

The move would promote Singapore to become the second RMB offshore center after Hong Kong.

During his visit to Beijing, the mayor of London also expressed the desire to become an RMB offshore center.

Analysts said that Singapore and London's strong interest in becoming RMB offshore centers would definitely boost the internationalization of RMB.

RMB settlements business has exceeded the country's geographic boundary, and a number of financial centers would boost convenience in RMB payments and settlements, said Sun Lijian, a professor of Fudan University.

At present, Hong Kong is the only region outside the Chinese Mainland that has RMB settlements banks.

Bank of China (Hong Kong) is the first offshore RMB settlement bank in Hong Kong. Along with the expansion of the RMB cross-border trade settlements program, the scale of the RMB offshore market in Hong Kong has shown rapid growth.

According to a PBOC official, RMB cross-border trade settlements hit 360.3 billion yuan in the first quarter of this year, nearly 70 percent of the total of such transactions in 2010. From July of 2009 to the end of 2010, RMB cross-border trade settlements totaled 509.3 billion yuan.

Ma Jun from the Deutsche Bank (NYSE:DB) predicted that RMB-denominated assets in Hong Kong would increase to 700 billion yuan by the end of 2012, and RMB deposits would rise to 2 trillion yuan from current 400 billion yuan.

The pace of RMB internationalization is gradually picking up.

China's central bank is in the process of drafting policies on piloting RMB foreign direct investment (FDI) together with the Ministry of Commerce (MOC) and the State Administration of Foreign Exchange (SAFE). The policy is expected to be introduced within the year.

In January the central bank issued a directive permitting domestic companies to conduct RMB investment -- specifically, overseas direct investment (ODI).

To date, China has signed currency swap agreements with South Korea, Malaysia, Belarus, Indonesia, Argentina, Iceland, Singapore, New Zealand, and Uzbekistan. The central bank has also signed a similar agreement with Hong Kong monetary authority.

Analysts said the move would encourage traders to invest in the local currency as part of China's efforts to promote cross-border trade settlements in RMB.

Wang Xiaoyi, deputy director of the SAFE, said in the latest edition of China Forex magazine that internationalization of the RMB would become one of the main areas of development for China's future forex market.

Sun suggested that China should keep promoting the opening up of its financial markets, and the marketization of interest rates and foreign exchange rates, to boost the internationalization of RMB. (Edited by Jiang Yujuan, jiangyj@xinhua.org)

(Source: )
(Source: Quotemedia)

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