♠ Posted by Emmanuel in China,Currencies
at 1/30/2012 03:37:00 AM
A week ago today, the Chinese and their vast diaspora celebrated Chinese New Year. As it so happens, it also ushered in the Year of the Dragon. Famously the most auspicious of characters, this too may be the year that the PRC powers-that-be become serious about internationalizing the RMB with the long-term goal of reforming the international monetary system in mind. Just as red envelopes like those above are used to give gifts in cash, 2012 may be the year the Chinese give the gift of renminbi internationalization to the world in a meaningful way. I've mentioned recent efforts to make RMB use more widespread worldwide, but I forgot to mention these two that point towards the same trend.First, Chinese authorities are improving RMB payment handling systems' integration with the international standard SWIFT (Society for Worldwide Interbank Financial Telecommunication):
The People's Bank of China, the country's central bank, is in the process of upgrading what is known as China's National Advanced Payment System, or Cnaps [I pronounce it as 'Schnapps' ;-)], to better facilitate cross-border trade denominated in yuan, according to government officials and executives at Chinese banks. The processing of yuan payments isn't at the same level of efficiency as a cross-border payment in other major currencies like U.S. dollars, with a hands-on system that often leads to high transaction costs, some observers said.Next, aside from payment handling, another obvious avenue for making the yuan more widely used is establishing a benchmark interbank lending rate alike LIBOR (London Interbank Offered Rate) and its various offshoots. This process has begun (where else?) in the Hong Kong offshore lending market:
"The processing cost of yuan payments must come down, so that when corporations do start to put significant yuan volumes through, banks can handle them smoothly and efficiently," said Patrick de Courcy, head of markets in the Asian-Pacific region for Swift, which operates a world-wide financial-messaging network between banks and other financial institutions.
Mr. de Courcy said China's central bank has agreed to use messaging standards adopted by Swift to support electronic payments into its system. A central-bank official confirmed the bank is upgrading the yuan-payment system. The bank declined to comment further.
Hong Kong's banking association this week began widely disseminating yuan-lending rates offered by three of the city's biggest banks to their peers, marking an important step toward the development of benchmark rates that could spur growth in the market for offshore yuan loans.Elsewhere, currency-watching stalwart Jeffrey Frankel handicaps prospects that the RMB will overtaker the dollar in short order based on historical precedents. Also note how African nations are gearing up in a similar fashion to handle RMB. Regardless, all I can say is that Chinese authorities are committing substantial efforts in making the RMB an international currency. Indeed 2012 may be remembered as the year the currency broke ground on the world stage in a major way.
The Treasury Markets Association's daily interbank reference rates from HSBC Holdings PLC, Standard Chartered PLC and BOC Hong Kong (Holdings) Ltd. involve loans ranging from overnight to one year. The association has said it aims to increase the number of banks contributing rates, in a bid to set benchmark yuan-lending rates.
Setting benchmark levels for yuan loans similar to the London interbank offered rate, or Libor—the most common global benchmark for short-term borrowing costs—is necessary so that banks can better price loan risks and measure borrowing costs, bankers and analysts say.
