Markets see EU RMB centres as key to global role for China FX, Aite Group and Clearstream report says
Joint press release
A study from Aite Group, commissioned by Clearstream, on “Internationalising the Renminbi: Weaving a Web for the Next World Currency” shows that market participants in Asia and Europe see the development of offshore centers in Europe as having a key impact on the global liquidity of China’s trading currency, the Renminbi (RMB).
During Q1 and Q2 2014, Aite Group held detailed interviews with market participants in Asia and Europe from 24 top firms in the financial industry to discuss their views on the internationalisation of the RMB, the development of European offshore centres and the current state of play of onshore RMB hubs.
More than half of interview respondents contacted during Aite Group’s research believe that Europe will play a key role in the currency’s internationalisation process, though some raised questions around its long-term future once onshore markets have been liberalised. 61% of respondents believe a developed European infrastructure is key to the success of the RMB.
“Many of those we have spoken to believe Europe as a whole will eventually cooperate to foster offshore liquidity in RMB, while only the minority now predicts Europe will fail to garner enough liquidity,” says Virginie O’Shea, senior analyst in Institutional Securities & Investments at Aite Group. “It will be a long road ahead, however, and there are still questions about whether full convertibility of the currency is a prerequisite for further significant progress to be made.”
The internationalisation of the RMB is seen as a three-step process in which the currency is first used as a global trade and payments currency, then as a global investment currency and finally as a global reserve currency.
As a trade currency, the RMB has come on by leaps and bounds in recent years and is now the second most used currency for trade finance in the world. The percentage of total global trade value settled in RMB rose from 1.9% in January 2012 to 8.7% in October 2013, an increase influenced by the Chinese government’s mid-2012 decision to further open the market to allow importers and exporters to settle trade transactions in RMB.
Operational issues remain the biggest barrier to the use of RMB in trade finance and payments. In particular, a lack of clearing broker readiness for operating in RMB (32%) and translation issues (32%) are cited as the main challenges, according to survey respondents.
Marc Robert-Nicoud, Executive Board member of Clearstream in charge of corporate strategy, said: “Aite Group’s research provides a unique insight into financial markets’ growing interest in the Chinese currency. The findings reflect the potential for RMB growth while helpfully identifying key barriers to the further development of the offshore RMB, which financial market infrastructures can help address.” A main success factor for the international development of the RMB market will be the establishment of an efficient and recognised infrastructure to optimise liquidity. It is therefore crucial to facilitate the issuance, settlement and custody of RMB-denominated bonds in the European market, as well as to further develop RMB-denominated products and collateral management services, thereby offering market players the opportunity to optimise their access to what is still a limited volume of offshore RMB.
Clearstream is the post-trade services provider within Deutsche Börse Group. As an international central securities depository (ICSD) headquartered in Luxembourg, Clearstream provides the post-trade infrastructure for the Eurobond market and services for securities from 53 domestic markets worldwide. Clearstream’s customers comprise approximately 2,500 financial institutions in more than 120 countries. Its services include the issuance, settlement and custody of securities, as well as investment fund services and global securities financing. With EUR 12.1 trillion in assets under custody, Clearstream is one of the world’s largest settlement and custody firms for domestic and international securities. As a central securities depository (CSD) based in Frankfurt, Clearstream also provides the post-trade infrastructure for the German securities industry.
As a core market infrastructure provider, Clearstream is at the forefront in facilitating the development of the Chinese currency, offering issuance, custody and settlement services of financial instruments denominated in RMB. Its product portfolio also includes award-winning collateral management and securities lending services through the Global Liquidity Hub, as well as innovative investment funds services via its Vestima platform.
Further information: www.clearstream.com
About Aite Group
Aite Group is an independent research and advisory firm focused on business, technology, and regulatory issues and their impact on the financial services industry. With expertise in banking, payments, securities percent investments, and insurance, Aite Group's analysts deliver comprehensive, actionable advice to key market participants in financial services. Headquartered in Boston with a presence in Chicago, New York, San Francisco, London, and Milan, Aite Group works with its clients as a partner, advisor, and catalyst, challenging their basic assumptions and ensuring they remain at the forefront of industry trends.
Further information: www.aitegroup.com