Subscribe

Singapore’s role in the RMB story

The Renminbi (RMB) is a currency with a plan. China is aligning global financial architecture with its strategic currency goals overseas and the pace of market reforms at home.

The ‘Belt & Road Initiative’ (BRI) is fuelling the long-term growth of the RMB, with over forty countries now involved in China’s major trade and investment program. 

At the same time, Asia-based businesses are developing ‘local-to-local’ networks which support the growing role of the RMB through hubs like Singapore, a financial centre which will be at the forefront of facilitating RMB and BRI investments across Asia.

“Singapore is the only regional financial centre with the depth of capital and expertise to take on the types and levels of lending required in BRI projects.”

While the near-term outlook on RMB usage among global currencies may fluctuate, this picture is set to change as BRI takes shape. Estimated to reach over $US 1.3 trillion in total investments by the mid-2020s, the sheer size and ambition of BRI will need the participation of banks who will provide the structural, legal and financing framework for it to be a success.

Meanwhile, much of China’s investment in ASEAN will likely be project financing related, particularly oil exploration, pipelines and ports in support of long-term trade growth.

This framework brings Singapore front and centre within the regional banking system – where it is already the preferred booking point for offshore loans into ASEAN and increasingly into mainland China.

Singapore is the only regional financial centre with the depth of capital and expertise to take on the types and levels of lending required in BRI projects.

Engineers

For 2018, the engineers of global RMB growth in Beijing have signalled the next series of major investment and trade channels will soon be established.

While no single development is likely to mark the moment when the RMB has become fully internationalised, an inflection point has arguably already been crossed for the currency throughout Asia.

In the right setting, banks and businesses outside China are now able to work on a daily basis with their Chinese commercial partners to build ‘local-to-local’ networks which allow the RMB to be utilised across country, regional and global markets.

Singapore has long remained the financial core of South East Asia (ASEAN) and since the era of globalisation began, the city has renewed its role as the cultural, transportation and economic gateway into the region.

These strengths are now evolving to establish the foreign exchange, currency settlement, capital raising and regulatory linkages outside of China for the RMB.

Click image to zoom Tap image to zoom

Click image to zoom Tap image to zoom

With Chinese investors and companies now increasingly approaching financial advisors on how to transact in South East Asia using the RMB, Singapore’s position in the region has allowed multinational banks based in the city as well as local markets to customize new currency systems to each individual country’s regulatory requirements.

As a result, Chinese financial institutions and corporates increasingly prefer Singapore as the hub of choice for facilitating investments into ASEAN and in turn establish new currency channels with global markets which connect through the city.

Driver

Over the medium-term, the BRI will likely emerge as an important driver of RMB demand in Asia and ASEAN.

After a period when major Chinese investments were being made in $US, Chinese President Xi Jinping in 2017 clearly indicated his preference for China to support large-scale infrastructure projects through RMB-denominated lending from now on.

BRI Infrastructure investments will likely provide a major boost to trade flows as well and ASEAN is already predicting the region is expected to reach $US1 trillion in trade with China per year by 2020.

For any financial architecture to be built correctly, deep knowledge on how to access local (Asian) markets and secure linkages between global financial hubs is required.

Whilst the strategic direction of the RMB will continue to be set by China it is the banks creating solutions which will facilitate the long-term day-to-day usage of the RMB in international markets.

Infrastructure development has become a priority topic both for ASEAN countries seeking to accelerate GDP growth as well as the Chinese industrial firms that have become experts in building critical transportation and energy systems that underpin the world’s second largest economy.

In order to make good on pledges by China’s government to support regional infrastructure projects however, mainland industrial groups and their local partners needed seamless RMB currency solutions that would avoid time-consuming entanglements when transacting across the region.

Anshul Sidher is Head of Markets Trading and Product at ANZ

This article is an edited version of a piece that originally appeared on ANZ’s Institutional website.

 

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

29 May 2017

Belt & Road, US & certainty key for RMB

Daniel Everett | Global Head RMB Strategy & Execution, ANZ

We run through the key themes to emerge from the RMB Global Cities Dialogue event.

28 Mar 2017

ON THE COUCH: innovation & change in Singapore

Andrew Cornell | Managing Editor bluenotes

Goh Chok Tong has had a long, distinguished career in politics and public policy in Asia, including a crucial period as the Prime Minister of Singapore, succeeding founding PM Lee Kuan Yew.