RMB to be fully convertible by 2015: RBS
SINGAPORE: With the Chinese renminbi increasingly a currency of settlement, some analysts have advanced their expectations for full international convertibility. Royal Bank of Scotland (RBS) said it may come as early as 2015.
A fully convertible currency is one criteria the U.S. and Europe demands as a condition for China being part of the International Monetary Fund's currency basket.
China has been floating the yuan in a narrow margin around a fixed base rate, determined with reference to a basket of world currencies.
However, this year, traders have seen the People's Bank of China broadening the trading band to around two per cent.
Chia Woon Khien, head of Non-Japan Asia FX & Local Market Rates at RBS, said: "I think it will follow quite quickly with more broadening of the trading band and eventually when you get to about five per cent, the next thing is to just let it go. Why would you run a freely floating currency -- managing within a band if you got no intention of opening the capital account?"
China has accelerated the use of the yuan in international trade to curb its reliance on the US dollar, and the increased demand that it generates is supporting the development of the offshore yuan market.
Augusto King, head of Debt Capital Markets (Asia) at RBS, said: "We do expect a lot more derivative contracts that will be developed through this liberalisation process."
With increasing cross-border trade settlement reaching 1.77 trillion yuan (US$283 billion) for the first eight months of 2012, some say full liberalisation is not far away.
Daniel Hui, head of Emerging Asia FX Strategy at JP Morgan Chase, said: "The Chinese government has been pushing very hard to make the currency more widely used outside of China. So, you see the establishment of the offshore renminbi in Hong Kong. I think the speed which that has developed has surprised many people."
The currency is traded under a two-market regime -- onshore and offshore -- with quotas imposed on the yuan held outside China that are allowed to flow back into the country. The onshore and offshore exchange rates also differ, but by a lesser amount in recent months.
The risk to Chinese authorities is that making the yuan fully convertible will mean more foreign inflows, and a stronger yuan - leading to a loss of its export competitiveness.
A fully convertible currency is one criteria the U.S. and Europe demands as a condition for China being part of the International Monetary Fund's currency basket.
China has been floating the yuan in a narrow margin around a fixed base rate, determined with reference to a basket of world currencies.
However, this year, traders have seen the People's Bank of China broadening the trading band to around two per cent.
Chia Woon Khien, head of Non-Japan Asia FX & Local Market Rates at RBS, said: "I think it will follow quite quickly with more broadening of the trading band and eventually when you get to about five per cent, the next thing is to just let it go. Why would you run a freely floating currency -- managing within a band if you got no intention of opening the capital account?"
China has accelerated the use of the yuan in international trade to curb its reliance on the US dollar, and the increased demand that it generates is supporting the development of the offshore yuan market.
Augusto King, head of Debt Capital Markets (Asia) at RBS, said: "We do expect a lot more derivative contracts that will be developed through this liberalisation process."
With increasing cross-border trade settlement reaching 1.77 trillion yuan (US$283 billion) for the first eight months of 2012, some say full liberalisation is not far away.
Daniel Hui, head of Emerging Asia FX Strategy at JP Morgan Chase, said: "The Chinese government has been pushing very hard to make the currency more widely used outside of China. So, you see the establishment of the offshore renminbi in Hong Kong. I think the speed which that has developed has surprised many people."
The currency is traded under a two-market regime -- onshore and offshore -- with quotas imposed on the yuan held outside China that are allowed to flow back into the country. The onshore and offshore exchange rates also differ, but by a lesser amount in recent months.
The risk to Chinese authorities is that making the yuan fully convertible will mean more foreign inflows, and a stronger yuan - leading to a loss of its export competitiveness.
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HSBC Indonesia sees increasing need on Renminbi in international trade financing
JAKARTA, June 30 (Xinhua) -- A senior official at Indonesian branch of the London-based Hong Kong Shanghai Banking Corporation (HSBC) said on Thursday that Chinese currency Renminbi would be one of three primary currencies, besides US dollar and Euro, used in international trade by 2015.
HSBC Indonesia Head of International Trade Nirmala Salli said that HSBC has learned that the usage of Renminbi to finance trade among Asian countries is continuing to increase in the recent years.
"Our economists have estimated that more than half of China's export and import transactions with developing countries within the next 2 to 4 years would be conducted in Renminbi," Nirmala told reporters on the sidelines on an export training session for businessmen held by the bank here.
Citing to the data issued by HSBC headquarters, Nirmala said that trade transactions using Renminbi had showed tremendous increase.
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Federal reserve worried on RMB Appreciation and U.S. Inflation Risk
If oil prices continue to rise and the RMB continues to appreciate, the U.S. inflation rate may increase at a faster pace in the near future. And this would have an unwelcome impact on consumers' wallets.
The value of the Chinese renminbi (RMB) has increased more than 21 percent against the U.S. dollar since 2005 (see the chart). This would be good news for the United States if increased costs of Chinese imports (as a result of the appreciated RMB) made U.S. consumers purchase fewer Chinese goods and reduced its trade deficit with China. However, U.S. imports from China have been increasing. Between 1999 and 2010, the share
of Chinese goods among total U.S. imports has increased from 6.9 percent to 16.1 percent, and the share of Chinese imports among total U.S. consumer expenditures has increased from 1.3 percent to 3.6 percent. Furthermore, the U.S. trade deficit with China increased from $67 billion to $263 billion between 1999 and 2010, a fourfold increase.
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