China’s RMB on the world stage, now & tomorrow

China’s RMB on the world stage, now & tomorrow

By: 
Michelle Zhu
30/09/16, 10:35 am

SINGAPORE (Sept 30): Starting Saturday Oct 1, China’s currency will be included in the International Monetary Fund’s (IMF) official foreign exchange reserves database.

This comes nearly a year after the organisation gave the nod on Nov 30, 2015, for the renminbi (RMB) to join the US dollar, the euro, the pound sterling and the Japanese yen in its Special Drawing Rights (SDR) basket.

(See also: Yuan IMF reserves entry seen as more symbolic than game-changing)

Guy Harvey-Samuel, CEO of HSBC Singapore, declares the move as a “harbinger of the Chinese yuan’s elevation onto the world stage”, and a “clear recognition of its development as a global medium of exchange”.

Rising role among central banks
“Whilst SDR inclusion does not automatically translate into reserve-currency status, its role within central banks is becoming more pronounced,” says Harvey-Samuel.

He highlights how HSBC’s latest annual Reserve Management Trend survey reflects a 10-fold increase in central banks that are now investing in the RMB since 2012 to 32. The study also projects that the currency’s share of global reserves is expected to rise to 7% in 2020 and to 10% in 2025.

“The RMB’s inclusion has also reignited market interest in SDR-denominated instruments: the World Bank recently issued an SDR bond in China that was settled in CNY,” says the CEO. “In the long run, this will help to enhance the role of the SDR in the international monetary system.”

What the inclusion means for Singapore
Harvey-Samuel believes the resulting boost in confidence and long-term demand for the RMB is likely to further improve the currency’s liquidity and stability in Singapore.

(See also: MAS to count renminbi investments as part of official foreign reserves)

“Already a RMB stronghold, Singaporean businesses’ ability to tap into a deeper pool of liquidity will have a positive multiplier in their ability to capture future inbound Chinese investment, including those linked to China’s Belt and Road initiative,” he asserts.  

Next step for the RMB
Meanwhile, Paul Mackel, HSBC Global Research’s head of emerging markets (EM) foreign exchange (forex) research, says the onshore-offshore basis in the USD-RMB’s forwards are in focus again.

In a Thursday report, he notes that there has been high volatility in the China Offshore Spot (CNH) forex forwards/swaps market, with “sharp divergence” between the onshore-offshore curves although the onshore USD-China Renminbi (CNY) spot exchange rate has been “more or less stable” in Q3.   

This could be a source of concern for the IMF, official investors and other foreign ‘real money’ investors, he adds.

“In our view, the next round of capital account/forex reform measures will likely address this issue, for example by granting onshore banks greater access to the offshore CNH market, and vice-versa,” adds the head of research.  

In his opinion, policy makers are more likely to focus on the insufficient onshore-offshore arbitrage activity now that the RMB’s SDR implementation is soon out of the way.   

“The next big step for the RMB is improving the circulation of it between the onshore and offshore markets. It’s more about seeking better convergence between CNY and CNH,” says Mackel.

Ex-remisier Ng denies being coached; RHB trader Alex Chew admits to telling the whole truth only in third statement

SINGAPORE (Apr 23): In Day Six of the trial of John Soh Chee Wen, the defence wrapped up their cross examination of the prosecution’s first witness, former OCBC Securities remisier Ng Kit Kiat. Ng had on Monday admitted to having performed trades without third-party authorisation. The trades performed without third-party authorisation included those based on orders given by a certain Ang Cheau Hoon Alice and Kent Eng Peng Huat, both of whom are remisiers at UOB Kay Hian, for accounts held by Ang's husband Poh Sian Hong as well as Eng's wife Yew Yong Mei. When asked by Soh’s defenc....
Read More >>

Singapore's pre-election cabinet change sets Heng up for top job

(Apr 23): Singapore’s Finance Minister Heng Swee Keat was promoted to deputy prime minister on Tuesday, a move that further positions him to succeed Prime Minister Lee Hsien Loong. Heng will become Lee’s deputy on May 1 while retaining the finance post, the prime minister’s office said in an emailed statement. He will also continue chairing the Future Economy Council and National Research Foundation. The sole cabinet promotion bolsters the odds that 57-year-old Heng will be the ruling People’s Action Party’s choice for prime minister after the general elections, which may come ....
Read More >>

OUE dumps stake in Nuvest Capital with no profit or loss

SINGAPORE (Apr 22): OUE announced it had sold its 33% stake in Nuvest Capital for US$1 million ($1.36 million). The buyer was Aje Kumar Saigal who owns the other 67% of Nuvest Capital. OUE acquired its 33% stake in Nuvest Capital in 2015 for US$1 million, so it has neither made a gain nor a loss. But in 2014, OUE invested US$200 million in Nuvest Real Return Fund which is managed by Nuvest Capital. Last Nov, OUE’s executive chairman had told analysts that the company plans to redeem the fund soon as it had not been profitable. In its FY2014 annual report, OUE's investment in t....
Read More >>