Bankers see ren­minbi on ris­ing road

China Daily (Canada) - - BUSINESS - By WEI TIAN in Shang­hai weitian@chi­

Ma­jor global fi­nan­cial in­sti­tu­tions on Thurs­day re­leased a re­port that ad­vo­cates and an­tic­i­pates more open cap­i­tal mar­kets and in­creased global use of the yuan. The re­port, RMB Roadmap, was pre­pared by the Asia Se­cu­ri­ties In­dus­try & Fi­nan­cial Mar­kets As­so­ci­a­tion, Stan­dard Char­tered Plc and Thom­son Reuters Corp.

“China’s cur­rency does not cur­rently match its eco­nomic heft, and it needs to go through a five-step process for this evo­lu­tion,” the re­port said.

First, as a de­posit cur­rency in­ter­na­tion­ally; sec­ond, through in­creased use for trade; third, as an in­vest­ment cur­rency; fourth, through more bi­lat­eral swap agree­ments in­volv­ing China; and fifth, global ac­cep­tance as a re­serve cur­rency, ac­cord­ing to Mark Austen, chief ex­ec­u­tive of­fi­cer of ASIFMA.

Many an­a­lysts con­sider the tim­ing is right for the ren­minbi to take its place among the leading cur­ren­cies of the world as China’s econ­omy ex­pands. But a com­bi­na­tion of fac­tors has slowed that process: a rel­a­tively closed cap­i­tal ac­count, un­der­de­vel­oped do­mes­tic cap­i­tal mar­kets and rel­a­tively low use of the yuan in trade set­tle­ment.

Fur­ther open­ing of the cap­i­tal ac­count, ex­panded use of the yuan as an in­ter­na­tional in­vest­ment cur­rency and In­ter­na­tional Mon­e­tary Fund recog­ni­tion of the ren­minbi as a po­ten­tial re­serve cur­rency through Spe­cial Draw­ing Rights are all crit­i­cal steps, the re­port said.

Car­men Ling, global head of ren­minbi so­lu­tions at Stan­dard Char­tered, said: “The build­ing blocks for ren­minbi in­ter­na­tion­al­iza­tion have stacked up well so far, and the on­go­ing ef­forts to fur­ther lib­er­al­ize the cur­rency are very en­cour­ag­ing.

“With a 2020 hori­zon, we think that China’s cap­i­tal ac­count should be ‘open’ by then, al­beit with some Chi­nese char­ac­ter­is­tics. There should be greater and more seam­less di­rect in­vest­ment flows with global ren­minbi liq­uid­ity fa­cil­i­tat­ing global cross-bor­der trades and pay­ments ef­fi­ciently. We are op­ti­mistic about the Chi­nese lead­er­ship’s re­solve to con­tinue with this cau­tious but bold am­bi­tion,” Ling said.

The build­ing blocks for ren­minbi in­ter­na­tion­al­iza­tion have stacked up well so far, and the on­go­ing ef­forts to fur­ther lib­er­al­ize the cur­rency are very en­cour­ag­ing.” CAR­MEN LING GLOBAL HEAD OF REN­MINBI SO­LU­TIONS AT STAN­DARD CHAR­TERED

“The off­shore ren­minbi mar­ket was cre­ated ex­plic­itly to al­low the cur­rency to move to­ward in­ter­na­tion­al­iza­tion, while the on­shore mar­ket re­mains largely sep­a­rate from the global mar­ket,” noted Adrian Go­stick, who spe­cial­izes in risk at Thom­son Reuters China. “As cap­i­tal con­trols ease, and link­ages be­tween the on­shore and off­shore mar­kets grow, the con­ver­gence be­tween these two mar­kets is in­evitable, al­beit at a grad­ual pace.”

For ex­am­ple, as the dim sum bond mar­ket has evolved, spreads be­tween dim sum bond yields and those of on­shore bonds have nar­rowed since the dim sum mar­ket opened in July 2010. The aver­age coupon on dim sum bonds has moved to 3.2 per­cent this year from 2.4 per­cent in 2010, while the aver­age coupon on on­shore bonds has fallen to 3.8 per­cent from 4.7 per­cent in 2010.

“Grad­ual on­shore and off­shore par­tic­i­pa­tion in the ren­minbi mar­kets by global cen­tral banks and in­vestors through the use of swap lines, the Qual­i­fied For­eign In­sti­tu­tional In­vestor and Ren­minbi Qual­i­fied For­eign In­sti­tu­tional In­vestor pro­grams, the rapidly grow­ing off­shore or ‘dim sum’ bond mar­kets and the rise of off­shore ren­minbi cen­ters – HongKong be­ing the largest – have con­trib­uted to the first phase of the yuan’s in­ter­na­tion­al­iza­tion, but there is still a long way to go,” said Patrick Pang, man­ag­ing di­rec­tor of fixed in­come at ASIFMA.

“The re­cent an­nounce­ment of the Shang­hai-Hong Kong Stock Con­nect pi­lot pro­gram is a prime ex­am­ple of the evolv­ing and ex­cit­ing land­scape,” Pang said.

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