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Renminbi gains ground, BCGE offers RMB savings account.Swiss banks are ready for China and renminbi business

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08/15/2015 06:33 AM
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Renminbi gains ground, BCGE offers RMB savings account.Swiss banks are ready for China and renminbi business
[link to swissbanking.org]

Swiss banks are ready for China and renminbi business

China has become the world’s second largest economy, its leading exporter, the largest holder of foreign currency reserves, and a major source and recipient of foreign direct investments. By 2016, the International Monetary Fund expects China to account for over one-third of total global economic growth.

The Chinese government is promoting the internationalisation of its currency, the renminbi. The RMB is taking on a growing importance as both an onshore currency (denominated as “RMB”) and an offshore currency (denominated as “CNH”, since Hong Kong is the predominant hub for offshore RMB transactions).

As a global payment currency, the renminbi has moved from position 35 in October 2010 to number 7 in February 2015, even outranking the Swiss franc. More than 10’000 financial institutions conduct business in renminbi, up from 900 three years ago. By 2015 Chinese companies expect one-third of Chinese external trade to be renminbi-denominated, and more than half of China’s trade with emerging markets amounting to 2 trillion US dollars is likely to be settled in renminbi. China has appointed RMB clearing banks in a total of 14 offshore renminbi hubs so far.

Similarly, the renminbi has taken on a growing role in foreign direct investments into China and outward investments from China. Foreign direct investments denominated in renminbi amounted to 35% of inward foreign direct investments, while outward investments in renminbi totalled 6% and continue to grow rapidly.

Rising trade and investment flows in renminbi produced an expanding pool of offshore liquidity of CNH 900 billion. Outstanding CNH bonds (including certificates of deposits) number 450 totaling more than CNH 400 billion. Renminbi financing and foreign exchange markets have reached an estimated daily turnover of 13 to 25 billion for spot and forward transactions.

Renminbi quota increase and Chinese reforms
In a series of steps, the Chinese government has raised the quota for qualified foreign institutional investors (“RQFII”) to invest offshore renminbi in the Chinese stock and bond markets to RMB 820 billion (January 2015). Of that total, around RMB 300 billion have been allocated to some 120 approved investors. In January 2015, the Chinese government allocated a total quota of RMB 50 billion to the Swiss financial center.

China's financial reforms are likely to advance fast. In March 2013, the daily currency floating band was widened from 1% to 2%. Deposit rates are gradually liberalized. China will also accelerate capital account opening and allow private commercial banks. The floating band for deposit rates has been widened and a deposit insurance scheme is being introduced.

- See more at: [link to swissbanking.org]