The development of the renminbi as an international financing currency is being aided by the establishment and rapid growth of the CNH bond market meeting the liquidity needs of cash starved corporates.
February 06, 2015 | Mobasher Kazmi
As the world’s largest exporting nation China may be considered to be quietly trying to assume the mantle of global economic leadership. To achieve that status its economic managers have undertaken initiatives to internationalise the use of the renminbi. From an erstwhile trade invoice currency, a strategic shift appears to be underway as the renminbi is repositioned to become an international financing currency.
This is primarily being achieved via the development of offshore renminbi centres at whose core lies the small, albeit promising, renminbi-denominated bond market. The formation of a deep and liquid offshore bond market will certainly strengthen the position of the renminbi within the international monetary architecture. It will also provide yield and diversification benefits to financial market participants seeking exposure to an emerging renminbi linked asset class.
These developments place the renminbi in a very unique position given that capital controls are still in place. While the offshore renminbi bond market continues to register strong year on year growth, when viewed in the context of the U.S. dollar or Euro denominated bond markets, the journey for scale and depth is still a long one. A review of the existing data on international securities reveals that the share of the Hong Kong dim sum bond market is less than one percent; well below any acceptable metric to be considered a truly international financing currency.
Lack of integration
Speaking on this topic at The Asian Banker’s Renminbi World 2014 conference was Johannes Graeb, an Economist with the International Policy Analysis division of the European Central Bank, credited the lack of integration between the onshore and offshore renminbi bond markets due to capital flow restrictions, as an impediment to its relative growth. He stated “becaus...
Categories:
Asset Management, Trustees and Custodians, Clearing & Settlement, Exchanges, Liquidity Risk, Markets & Exchanges, Regulation, Risk & Compliance, Risk and Regulation, Rmb, Trade Finance, Trading & Data, Transaction BankingKeywords:Financial Integration, Onshore Renminbi, Offshore Renminbi, Dim Sum Bonds, SWIFT
