CNH Tracker-New York's quiet emergence intensifies offshore yuan competition

Thu Mar 13, 2014 12:11am EDT

By Michelle Chen
    HONG KONG, March 13 (Reuters) - As the competition to become
the leading offshore yuan centre in Europe intensifies among
candidates such as London, Luxembourg and Frankfurt, the quiet
growth of yuan business in the Americas may have caught many by
surprise.
    With its well-established financial infrastructure and
unique time zone, New York's yuan market share is increasing as
more companies have started to adopt the yuan to settle trade
transactions and capitalise on yuan products to hedge FX risk.
    The United States was ranked fourth (excluding China and
Hong Kong) in terms of customer initiated and institutional
payments denominated in yuan in January, up from sixth a year
earlier, according to global transaction services organisation
SWIFT.
    The United States has an offshore yuan market share of 7.3
percent, following the UK at 25.7 percent, Singapore at 25.2
percent and Taiwan at 9 percent.
    "New York's growth as an offshore renminbi centre has been
relatively organic, largely based on local needs for settlement
of renminbi-denominated trades in the Americas time zone," said
Kelvin Lau, an analyst at Standard Chartered Bank.
    The bank recently included New York in its renminbi
globalisation index after it did a roadshow in the city, finding
that the Chinese currency was seen by local investors as the key
investment opportunity in Asia ex-Japan.
    Companies there increasingly make use of the yuan in trade
settlements, not only because they are able to enjoy attractive
discounts offered by Chinese counterparts, but also a faster
process to get the transations done, bankers say.
    The United States is China's biggest trading partner.
    In 2013, China's exports to and imports from the U.S. stood
at $521 billion, accounting for 12.5 percent of China's total
trade, statistics from the General Administration of Customs of
China showed.
    The huge trade volume means even if a small percentage of
the total is redenominated in the redback, the absolute figure
is likely to be considerable. Along with this, companies make
more use of yuan derivatives to manage their FX exposure.
    However, China's trade surplus with the United States may
make growth in yuan deposits in the country difficult, which is
different than the situation in Taiwan, where yuan deposits have
risen quickly thanks to heavy trade volumes as well as China's
trade deficit with the island.
    The obstacles to challenge the dollar's dominant global
position may also prove especially big in the United States and
any further yuan penetration into the world's largest economy
will take time. 
    Beijing is making great efforts to promote its currency to
foreign trading partners and investors, which has already seen
some success. Yuan trade settlement took up nearly 30 percent of
China's total trade in February, compared to 2 percent in 2010.
    The Chinese currency surpassed the Swiss franc to become the
seventh most-used world payments currency in January, having
overtaken 22 currencies in the last three years.
    The pace is set to accelerate as regulators are reforming
China's domestic market faster than expected. The central bank
governor said to liberalise the country's deposit rates in one
or two years, the most explicit timeframe to date.
 
           
    WEEK IN REVIEW:    
    * China will continue to increase the quotas for Qualified
Foreign Institutional Investors (QFII) and RQFII this year, Xiao
Gang, Chairman of the China Securities Regulatory Commission
(CSRC) said on Tuesday in the annual parliament session.
    * Haitong International listed an exchange-traded
fund (ETF) tracking China's CSI300 index on Friday, which is the
first RQFII ETF managed by a securities firm. The quota for the
fund is 2 billion yuan.
    * Index compiler MSCI plans to include China's
mainland-based A shares in its benchmark emerging market index
from May 2015, as the country gradually opens up its domestic
yuan markets to foreign investors. 
    * Taiwan will launch an exchange-traded fund (ETF) platform
for investors to trade in mainland China stocks this year, the
chairman of Taiwan's Financial Supervisory Commission said in a
statement to lawmakers on Wednesday. 
    * The Airport Authority Hong Kong (AAHK) will consider
issuing dim sum bonds to raise part of the money needed for the
construction of the third runway and other related projects,
Hong Kong's Wen Wei Po quoted Hui Hon-chung, Chief Executive
Officer of the AAHK as saying.    
    
   CHART OF THE WEEK: 
   Offshore yuan business picks up in the U.S. as shown by SWIFT
data:RECENT STORIES:
CNH Tracker-Volatility keeps high grade offshore yuan debt in
favour 
    
More stories about the CNH market                 
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Offshore yuan dealt Onshore yuan on CFETS 
  
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