How Singapore will milk gains from RMB internationalization

RMB market shifting focus.

According to OCBC Treasury Research, the offshore RMB market has grown rapidly from July 2009 to 2013. Total offshore RMB liquidity has reached about CNY2tn including deposits, bonds and certificate of deposits (CDs) in three major offshore Yuan centres (Hong Kong, Taiwan and Singapore) by end of 2013 based on OCBC's estimation.

Expectations on RMB appreciation, interest rate differential and cost savings for corporates have been three key drivers to this almost non-stoppable trend for the past four and half years.

Nevertheless, after China introduced two-way volatility for USDCNY from mid-February 2014, RMB internationalization may enter into a new era going forwards with the focus shifting beyond the RMB appreciation story.
Given the focus on the next stage of RMB internationalization is likely shift from trade currency to investment currency, Singapore’s experience as the global financial centre will add value to China’s RMB internationalization strategy.

Although Hong Kong takes the lion share of 80% of global RMB payment and trade settlement, Singapore’s share in the USDCNY OTC foreign exchange daily trading volume is much bigger than its share in RMB trade settlement. The latest BIS 2013 triennial survey shows that the daily USDCNY trading volume was about half of trading volume in Hong Kong in April 2013, exceeding the trading volume in the UK.

Since the official appointment of ICBC Singapore branch as the sole RMB clearing bank in Singapore in early 2013, the offshore RMB market has developed rapidly in Singapore with total RMB deposits has reached CNY200bn by end of 2013.

Meanwhile, total RMB clearing volume through ICBC Singapore has reached CNY6.9tn in 1Q 2014, exceeding total clearing volumes in 2013. The daily clearing volume surged from zero in early 2013 to about CNY150bn; accounting for almost one third of Hong Kong’s daily clearing volume.

Singapore’s deputy Prime Minister Tharman has pointed out in 2013 that Singapore can play three important roles in RMB internationalization including 1) building RMB liquidity through “leveraging on its strengths as a key wholesale funding centre to increase liquidity and circulation of the RMB in Asia.” 2) Enhancing access to RMB for funding and investment purposes and 3) integrating the offshore RMB with existing Asian local currency markets. 

Singapore is well on track to support RMB internationalization to fulfil its role in our view. For example, Singapore Exchange is expected to launch the RMB futures product in 3Q this year, which will provide more hedging tools for global users of RMB.