| HONG KONG
HONG KONG Feb 21 China's central bank has
clarified operational details for conducting cross-border
business in the yuan currency through its pilot project in the
Shanghai free trade zone, according to a circular seen by
Reuters on Friday.
The circular to the banks was released by the Shanghai head
office of the People's Bank of China (PBOC), and marked a
significant step in Beijing's goal to internationalise the use
of the yuan, a move that could rival the U.S. dollar as the
preferred currency in global business transactions.
The details sent out on Thursday is generally in line with
the Opinions on the Developments of China (Shanghai) Free Trade
Zone released in December, but they included operational rules
on how banks can conduct yuan business.
China launched the Shanghai free trade zone in late September
and officials promised a far more open and streamlined
environment for foreign firms to do business there, along with
the relaxation of policies for a raft of service sectors.
It forms part of a broader drive to help expand the Chinese
currency's footprint beyond Hong Kong, where more than 80
percent of yuan trade settlement transactions are handled and
foster greater confidence among offshore businesses to adopt the
yuan, also known as the renminbi, as a currency for trade.
Beijing's efforts have paid dividends, with the yuan
already overtaking the euro to become the second-most used
currency in trade finance, data from global transaction services
organisation SWIFT showed.
According to the circular, banks in Shanghai are allowed to
do cross-border renminbi settlement under the current account
and for direct investment on the basis of "know your client",
"know your business" and "due diligence."
This means that lenders can decide whether to arrange such
transactions for their clients independently, without having to
seek approval from regulators.
The notice also unveiled formulas to calculate how much
companies and financial institutions in the zone can borrow in
renminbi from offshore markets and where the funds can be used.
In terms of cross-border, two-way renminbi pooling and
sweeping, members within a corporate group are allowed to do
non-quota based transactions without the central bank's
The move enables greater visibility, control and flexibility
in managing a group's onshore and offshore renminbi-denominated
Following the notice, Standard Chartered Bank
announced on Thursday that it had approved the first such
transaction for Baoxin Auto Group, an automobile sales
and service group focused on high-end automobile brands.
Fund transfers from Baoxin Group's participating
subsidiaries into the cash pools inside and outside the free
trade zone can be initiated through its free trade zone office
without quotas or central bank approval.
A batch of banks including Deutsche Bank DBKGn.DE, Citibank,
DBS, Hang Seng Bank, HSBC and Bank
of East Asia have received approvals to start
operations in the pilot zone.
The circular also said China Foreign Exchange Trading System
& National Interbank Funding Center (CFETS), will provide
service of financial asset transactions denominated in the
Chinese currency to investors in the pilot zone and offshore
markets. The CFETS is an arm of the PBOC, whose core functions
include providing trading and benchmark facilities.
Shanghai Gold Exchange will also make efforts to promote the
wider use of the renminbi in international precious metal
markets by offering precious metal transactions and settlements
in the Chinese currency in the free trade zone.