A combination of rule changes in China and increasing uptake in Europe is driving the internationalisation of the Chinese renminbi (RMB), with the currency now the 16th most popular for payments, according to SWIFT.
Hong Kong is still the largest international centre for RMB payments, according to SWIFT’s April RMB tracker, but Europe is now the next biggest contributor to global RMB transactions. Excluding China and Hong Kong, Europe increased its share of RMB payments from 36% in Q1 last year to 47% in Q1 2012. The region now uses the RMB for 6.7% of all its payments with China and Hong Kong.
London accounted for half of Europe’s RMB contribution, while Singapore represented around two-thirds of the Asia-Pacific contribution – which declined from 59% to 41% over the same period. Overall, the RMB accounted for 0.35% of global trade in March, up from 0.33% the previous month. Since October 2010, the currency has improved its position from 35 on SWIFT’s list of global currencies to number 16.
“The growth of the RMB has been spectacular,” said Lisa O’Connor, director, RMB internationalisation, SWIFT. “The RMB grew 14.8% in 2011, versus 0.7% for all other currencies. If we compare that to other BRIC economies, RMB grew two times faster than the next closest BRIC economy, Russia, which registered at 7.4%.”
The growing quantity of RMB in international circulation is increasing the opportunities for foreign institutional investors to use RMB – including for investments back into China. The renminbi qualified foreign institutional investor (RQFII) scheme operated by the Chinese authorities allows domestic Chinese brokerages and fund companies to raise money offshore for investment in the domestic markets. The RQFII initiative also allows foreign firms to bring investments of offshore renminbi deposits back into China.
Another key change is the removal of the mainland designated enterprise list by the Chinese government, in March this year. Prior to abolition, the list named a restricted number of corporations in Mainland China who were able to receive payments in RMB. The removal of the list means that virtually all exporters and importers in Mainland China can now settle in RMB with companies outside of China, according to O’Connor.
“This is a really big thing,” she said. “It was difficult to pay suppliers in RMB, because each firm would have to be on the list. Now that barrier is removed, the RMB is seeing increasing use for trade, therefore raising the value and volume of RMB being used across the SWIFT network.”
Banks in Hong Kong already offer a range of RMB-denominated retail banking services, such as deposit-taking, currency exchange, remittance, debit and credit cards, cheques, and the subscription and trading of yuan bonds, as well as yuan trade settlement.
The City of London has been positioning itself as the next major offshore RMB centre. In January, the UK Treasury and the Hong Kong Monetary Authority launched a joint private sector forum that aims to improve cooperation between the UK and Hong Kong to support the Chinese government’s development of the offshore RMB market. But O’Connor believes all financial centres stand to gain as the quantity of RMB in circulation increases.
“There has to be good global use of RMB for everyone to benefit,” she said. “The boat will rise wherever you are doing business, because the water level of RMB-denominated payments will rise everywhere. The pool will become more liquid and more robust – and that is what we are seeing in the April RMB tracker results.”