By Steven Wells, Bourse Consult
Historically, the international use of the renminbi has been inhibited by tight exchange controls, but efforts in recent years by the Chinese authorities to relax these controls have led to substantial development in cross border trade in the currency. This process of liberalisation seems to enjoy broad political support, and is seen as a policy that will eventually lead to the full convertibility of the renminbi.
During 2012 there were significant reforms affecting the convergence of domestic and offshore interest rates, the level of permitted foreign investment into China and clearing and settlement of offshore renminbi – in particular the announcement of an international payments system giving foreign banks direct access to the Chinese central bank for settlement.
Capitalising on this liberalisation, London is ideally placed to become a leading offshore centre for RMB: it enjoys a leading position as a global foreign exchange hub, it has already developed a pool of RMB liquidity, it is able to take advantage of its central timezone between the US and Asian markets, and the City of London has spearheaded a joint public and private sector initiative to work with the Chinese and Hong Kong authorities to oversee a cohesive strategy on developing RMB business in London.
Three reports produced by Bourse Consult have shown that London’s RMB market has continued to grow significantly in the two years since the start of the Chinese programme of liberalisation of the RMB; transaction volumes in foreign exchange and trade services have increased steadily over the period.
The latest report, London RMB Business Volumes 2012, which covers the full year 2012 and provides a point of comparison with the first survey covering 2011, shows that the London banks participating in the quantitative survey saw a very significant expansion of both the forex/risk management products and in services supporting trade during the period. This continues the trend seen in the interim survey Business volumes in London January-June 2012 which showed London participants seeing rapid growth in those areas.
Trading of all deliverable forex-related products in 2012 with daily average of $7.7bn was 205% higher than in 2011 including spot trading which increased by 240% to $2.5bn per day. Total daily trading of deliverable and non-deliverable forex products in 2012 totalled $16.8bn per day. Trade-related services expanded with trade financing rising by 100% to over ¥33bn and letters of credit showing a 13-times increase over 2011 to ¥4.7bn.
The results suggest then that London can look forward to continued growth in terms of the range of products and the volume of RMB business over the coming years, underpinned by its strength in transactional services.
The full report London RMB Business Volumes 2012 can be downloaded in full from the City of London's website.