Why RMB Will Be a Global Currency by 2015

http://mib.rbs.com/insight/currency-conundrum/why_rmb_will_be_a_global_currency_by_2015

Members: 李畅 吴燕 黄大红

Use of China’s renminbi is increasing rapidly despite the country’s slowing economy and the time is now for the new leadership to push it as a major international currency. John McCormick, CEO, Markets & International Banking and Chairman, RBS Group, APAC, explains.

Financial crises in the US and Europe mean the world needs a new, more stable global reserve currency, and trade in RMB is growing rapidly. Figures in the FX market show that volumes are now worth around USD5-6 billion daily – double what they were a year ago.

Many factors suggest that the Chinese authorities want to make RMB internationalisation happen by 2015.

First, the IMF uses four key international currencies to supplement member countries’ official reserves and bolster liquidity. It’s a strong chance for RMB.

China work alongside the UK Government promoting London as a CNY centre, operating in partnership with Hong Kong. Achieving this would make London the first CNY hub outside China and be a big step towards an international RMB.

Another move to make RMB a global reserve currency is that, CNH has traded at a different FX rate to CNY due to heavy regulation in mainland China.

Words and Expressions:• RBS Group : The Royal Bank of Scotland Group plc (also known as

RBS Group) is a British banking and insurance holding company in which the UK Government (HM Treasury), as of 31 March 2012, holds and manages an 82% stake through UK Financial Investments Limited (UKFI), whose voting rights are limited to 75% in order for the bank to retain its listing on the London Stock Exchange. In addition to its primary share listing on the LSE, the company is also listed on the New York Stock Exchange. The group is based in Edinburgh, Scotland. In 2009, after the financial collapse, it was briefly the world's largest company by both assets (£1.9 trillion) and liabilities (£1.8 trillion).

• APAC: Asia-Pacific or Asia Pacific is the part of the world i

n or near the Western Pacific Ocean. The region varies in size depending on context, but it typically includes at least much of East Asia, Southeast Asia, and Oceania.

The term may also include Russia and countries in the Americas which are on the coast of the Eastern Pacific Ocean; the Asia-Pacific Economic Cooperation, for example, includes Canada, Chile, Russia, Mexico, Peru, and the United States.

• reserve currency reserve currency or anchor currency, is a currency

that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, and commodities such as oil, gold, etc.

This permits the issuing country to purchase the commodities at a marginally lower rate than other nations, which must exchange their currencies with each purchase and pay a transaction cost.

• FX market : The foreign exchange market (forex, FX, or currenc

y market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. EBS and Reuters' dealing 3000 are two main interbank FX trading platforms. The foreign exchange market determines the relative values of different currencies.

• Liquidity In finance, a company's liquidity is the amount of cash or liquid assets it has easily available. Liquidity also refers both to a business's ability to meet its payment obligations, in terms of possessing sufficient liquid assets, and to such assets themselves.

• CNY : 人民币 (China Yuan ）的代码，是 ISO 分配给中国的币种表示符号。目前人民币 (RenMinBi Yuan) 简写为 RMB ￥，其简写用的是人民币汉语拼音开头字母组合，标准货币符号为 CNY ，在国际贸易中是表示人民币元的唯一规范符号。现在已取代了 RMB ￥的记法，统一用于外汇结算和国内结算。但用于国内结算时在不发生混淆的情况下 RMB ￥仍然可以用。一般银行多用 CNY ，企业内部会计多用 RMB ￥。有时候出于简化原因（譬如为简化打印机设计而只支持 ASCII 字符集） RMB ￥中的￥被省略掉记为 RMB 。

• CNH: 在中国大陆以外进行交易的人民币，称为离岸人民币（ CNH），因在中国境外发行量有限，通常交易价格高于本土，并可在大陆之外自由兑换。

离岸货币是指在发行国以外存放并进行交易，且不受货币发行国金融法令管制的货币。发达的国际金融市场上，货币离岸经营是一个非常普遍的现象，离岸经营的货币称为离岸货币 (Offshore Money)，具体地说，离岸货币是指存放在货币发行国境外银行的货币存款，例如，伦敦巴克莱银行吸收的美元存款就是离岸美元，新加坡某家银行吸收的英镑存款就是离岸英镑，上海某银行吸收的港元存款就是离岸港元。

Background: China plans to make Shanghai, the country's financial hub, a global center for innovation, transaction, pricing and clearing of RMB-denominated financial products by 2015. The plan will be part of China's bid to build Shanghai into an international financial center by 2020 amid a shifting global financial landscape, with China's economic weight and its currency taking a more prominent position on the world stage. The 12th Five-Year Plan period (2011-2015) will be "a period of strategic opportunities." The government aims to increase the total transaction value of all financial markets in Shanghai, barring foreign exchange markets, to around 1 quadrillion Yuan (158.5 trillion U.S. dollars) by 2015. The scale of overseas investment in Shanghai's financial markets will be markedly expanded by that time, with major stock indices and commodities futures prices of those markets having a greater global influence. Meanwhile, the Shanghai Interbank Offered Rate and the RMB central parity rate will become major benchmarks for domestic and foreign RMB asset pricing and transactions. To achieve these goals, the city will speed up infrastructure construction to build a cross-border RMB payment and clearing network geared toward global demand, the official said. A cross-border RMB investment and financing center will also be established in Shanghai.

As China's two major financial centers, Shanghai and Hong Kong will continue to step up communication and cooperation in areas such as financial markets, institutions, products, businesses and talents, the official noted. Foreign-funded financial institutions will be encouraged to set up their regional or global headquarters in Shanghai. Shanghai boasts China's biggest stock exchange, the headquarters of the country's foreign exchange trading system and a major commodities futures exchange.

The government's drive will benefit from the rising status of the Chinese economy and currency in the global financial system and China's deepening economic and financial reforms, the statement quoted an unnamed NDRC official as saying. In the meantime, it faces challenges from intensified competition among global financial markets and higher demand for financial risk control. Although the RMB is not fully convertible under the capital account at this time, China has made gradual moves to promote the currency's internationalization over the past few years. The country expanded a pilot program to extend cross-border trade settlements in Yuan to the whole nation last year. It also supported Hong Kong's establishment of an offshore Yuan market.