The Monetary Authority of Singapore has issued a consultation paper on proposed regulation of Renminbi foreign exchange conversions, and has requested feedback on its suggestions by the end of next week.
This is an important new development in Asia. The internationalisation of the Renminbi and its use in bilateral trade settlements has been mooted by Hong Kong fund managers that trade Greater China as a potential game changer in the development of China, reinforcing its impact on world trade and the bringing to the forefront the influence of its currency as it moves gradually towards convertability.
On 2nd April 2013, The People’s Bank of China signed an understanding with the MAS on the subject of cooperation with respect to the Renminbi. The PBOC also executed a Renminbi clearing agreement with the Singapore branch of the Industrial and Commercial Bank of China (ICBC)
In its capacity as a Renminbi clearing bank in Singapore, ICBC will be allocated a RMB foreign exchange conversion quota so that Singapore banks which have entered into an agreement with this clearing bank can carry out foreign exchange conversion for the settlement of cross border trade.
MAS has set out its expectations on the criteria of eligible cross-border trade, plus the due diligence required by banks to verify those trades (as in the physical sense of ‘trade’ rather than the financial sense), retention of records and reporting.
As well as calling for quarterly reporting back to the MAS, the regulator has also proposed that participating banks should appoint an auditor at the end of the financial year to look into internal policies, procedures and controls on the verification of cross-border trades.
That is needed because Singapore banks aren’t going to be allowed to carry out Renminbi foreign exchange conversion for any other purpose except for eligible trade purposes with China, and the deal has to be done not more than three months before payment is due (if Singapore is importing from China) or not more than three months after payment is received (in the event of an export to China).