Internationalisation of the Renminbi: Measuring Progress Towards a Global Currency

Transcription

1 Internationalisation of the Renminbi: Measuring Progress Towards a Global Currency RMB Tracker July 2016 Edition

2 CONTENTS The authors would like to thank the following for their support in producing this paper: Julien Martin Head of Fixed Income and Currency Product Development, Hong Kong Exchange Qingsong Zhang General Manager, Payment and Clearing Department, Bank of China Sandip Patil Regional Head, Global Liquidity and Investment, Asia Pacific, Treasury and Trade Solutions, Citi Bank Upadhyay Biswajyoti Managing Director, Regional Head Transaction Banking - Product Management & Client Access, Greater China and North Asia, Standard Chartered Bank Xin Zhang General Manager, China International Payment Service Corp 1 Foreword 2 Executive summary 4 Chinese Yuan back to #6 as world payments currency 7 Three new offshore clearing centres appointed since September RMB Adoption across financial institutions continues to grow 10 US Dollar continues to be the leading currency for cross border payments done with China and Hong Kong 11 Support your RMB strategy with fact-based insights SWIFT 12 About SWIFT Astrid Thorsen Eric Yang Laetitia Moncarz Michael Moon Nicola Kaur Pedro Mullor Sarah L Ortye Wim Raymaekers

3 SWIFT s July 2016 RMB Tracker provides a detailed status update on the evolution of RMB in Payments FOREWORD By Alain Raes Chief Executive, APAC & EMEA, SWIFT Since 2010, SWIFT has actively supported its customers and the financial industry regarding RMB internationalisation through various publications and reports. The SWIFT RMB Tracker issued on a monthly basis provides the community with insights into the focal conversation about China s Renminbi (RMB) and its growing influence on the world. With the occasion of the SWIFT Greater China Regional Conference, taking place in Shanghai on the 21 July 2016, I am delighted to present this special edition of the RMB Tracker that provides an updated and consolidated overview of the RMB s rise as an international currency. This report focuses on 2016 half-year statistics and analysis from SWIFT. It also includes insights from financial industry experts on the recent evolutions of the RMB and what the future has in store for the Chinese currency. Despite a recent slowdown, reflected in the key indicators presented in this report, RMB internationalisation is continuing by most measures, such as payments, bank adoption and offshore clearing centre growth. The journey towards full internationalisation of the RMB is a long one, but the creation of new offshore centres around the world combined with the progress of China s new Cross Border inter-bank Payments System (CIPS) will help move the RMB along its path towards internationalisation. SWIFT is optimistic about the RMB s journey towards a more international currency. However, the success of the RMB remains dependent on several key factors, which requires the full attention of the global community. The following key factors are critical for RMB internationalisation: Expand the connectedness of RMB On 30 November 2015, the International Monetary Fund (IMF) included the RMB in the Special Drawing Rights (SDR) basket along with four other major currencies. Concretely, the central banks will be able to use RMB to diversify their reserves. However, this inclusion needs to be supported by broader connectivity and progress of RMB internationalisation correlates with more banks serving their customers in RMB, and through improvements in RMB clearing and settlement financial infrastructures such as offshore clearing centres and CIPS. Enhance RMB products and services suite To support the growth of RMB in a manner that is safe, scalable, reliable, secure and resilient financial institutions will need to invest in optimising products and services for their customers. SWIFT s suite of products and services, such as business intelligence, messaging conversion and networks, contribute to an essential foundation for growing the global footprint of the RMB. Ongoing focus on standards and compliance The march towards a global currency requires ongoing industry focus on efficiency, automation and global message standardisation. As part of the journey, compliance to local and global regulations is ever more important. I hope you find this Greater China Regional Conference special edition of the SWIFT RMB Tracker insightful. In terms of emerging economic opportunities, and despite the recent slowdown, I truly believe the RMB remains the game changer for many not just for countries with designated offshore RMB centres, but for businesses and consumers around the world. 1

4 EXECUTIVE SUMMARY In SWIFT s capacity to support its community, many initiatives are taking place to facilitate Renminbi (RMB) transactions worldwide. SWIFT has been tracking the internationalisation of the RMB since 2010 and produces a public, freely available monthly tracker on swift.com. Since 2011, the RMB has steadily progressed along its path to become a global currency in international trade. SWIFT s data indicates that many RMB data points continue to progress in areas such as payments, bank adoption and offshore clearing centre growth. On 25th March 2016, SWIFT and CIPS signed a memorandum of understanding (MoU) to commence strategic cooperation. The MoU sets out plans to develop CIPS using SWIFT as a secure and reliable channel to connect CIPS with SWIFT s global user community. CIPS went live with pilot banks since October 2015 and it is now starting its phase 2 Development. SWIFT will continue working with China and the international financial community by providing connectivity, standardisation and other value added services. This will undoubtedly underpin the ongoing success of RMB internationalisation. This special edition covers in more details the below key highlights based on June 2016 data: # 2 for Asia Pacific intra-regional payments with China & Hong Kong But the gap between JPY and CNY is minimal 1,247 banks use RMB for payments with China and Hong Kong in June 2016 Representing 40% of all financial institutions exchanging payments with China and Hong Kong Up 22% since June 2014 A further 600 banks use the Chinese currency for payments without a leg with China or Hong Kong What is CIPS? China International Payment Service Corp. (CIPS) is a clearing institution established within the territory of the People s Republic of China, which is approved by People s Bank of China (PBOC) and subjected to PBOC s supervision. CIPS Corp. is responsible for the operations and maintenance of Cross-border Interbank Payment System (CIPS), including the management of its participants and business promotions etc. Construction of the CIPS is carried out in two phases: In the first phase, real-time full-amount settlement is adopted to provide clearing and settlement services for cross-border trade, cross-border investment and financing, and other cross-border RMB businesses In the second phase, a more liquidity-saving hybrid settlement mode will be employed to increase the efficiency of cross-border and offshore RMB clearing and settlement In phase two, CIPS is also looking at extending the operating time to cover more time zones, and consistently improving its standards and services portfolio to enable broader participation. # as a World Payments Currency 6in value 1.72% of global payments in value up from #10 and 0.87% in June 2013 New centres have emerged including Seoul and Canada United Kingdom becomes the #1 clearing centre again for RMB after Hong Kong processing 24.4% of RMB payments by value, excluding China and Hong Kong The UK is closely followed by Singapore, processing 18.5% excluding China and Hong Kong Decrease in most countries except United Kingdom (+7%), South Korea (+16%) and Canada (+124%) 2 US Dollar is still the primary currency with a weight of 63.6% currency for cross-border payments done with China and Hong Kong with a share # 2of 12.7% As an important financial infrastructure to support the RMB internationalisation, Cross-border Interbank Payment System (CIPS) offers clearing and settlement services for cross-border trade, investment and financing, and other cross-border RMB business in major time zones. CIPS, like a broad straight highway, provides an efficient, convenient and secure payment channel to further improve the efficiency of the RMB cross-border clearing and settlement process, and therefore promote the RMB internationalisation. Xin Zhang General Manager, China International Payment Service Corp T he collaboration between SWIFT and CIPS enables consistency and standardization towards global standards. The establishment of CIPS will help improve the efficiency of RMB clearing as the currency moves forward on its internationalisation journey. For corporate treasurers, we anticipate that CIPS would enable efficiency in settling their global trade and treasury transactions using RMB. Specifically, with the collaboration with SWIFT and RMB banks, corporate treasurers can look to gain benefits from the use of SWIFT standards for communication and global standardisation. Sandip Patil Regional Head, Global Liquidity and Investment, Asia Pacific, Treasury and Trade Solutions, Citi 3

5 Chinese Yuan back to #6 as world payments currency According to SWIFT June data, Canadian dollar has overtaken the RMB and entered the top five of world payment currencies by value, with a share of 1.96%. Just three years ago, in June 2013, the RMB was ranked at position #10 with a share of 0.87%, while in June 2016, the RMB had a share of 1.72% in global payments by value. In the last three years, the RMB overtook several currencies, including the SEK, HKD, CHF and CAD, but fell back to position number six in April RMB overtook 6 currencies during the last 3 years Payments sent and received by value, excluding central banks. JPY AUD CAD CHF HKD SEK CNY #10 #7 #5 # D uring the first half of this year, the growing pace of RMB cross border payments has to some extent slowed down after several years' spectacular growth, against the backdrop of eventful international markets and more responsive RMB exchange rates. This is arguably a necessary stage of RMB internationalisation, which helps setting solid foundation in the long run. In regards of financial market infrastructure, Bank of China Hong Kong was admitted to join the CIPS, being the first direct participant out of mainland China, which will further facilitate the connectivity between onshore and offshore systems. We are confident that Hong Kong's place as a global RMB trading and clearing hub will be enhanced and all market participants are certain to benefit. Qingsong Zhang General Manager, Clearing Dept, Bank of China In April and May 2016 the RMB was 2015 but since then its share has Recent SWIFT data also shows that the the Japanese yen is minimal. trailing the CAD with a minor difference been decreasing. The offshore RMB Japanese yen overtook the Chinese of 0.01% but the gap increased in June usage has most likely been negatively currency as the most active currency Overall, global RMB payments slightly 2016 likely due to the seasonal effect impacted by the volatility in the used by Asia Pacific for payments with increased by value by 0.19% in of the Dragon Boat holiday in China Chinese market and the slow-down China and Hong Kong. Compared to June 2016 compared to May 2016, and Hong Kong. The RMB reached its of Chinese economy. last year, the RMB moved from position while payments across all currencies record high share of 2.79% in August one to number two, but the gap with increased by value by 10.33%. 4 5

6 Currency weight evolution within Asia Pacific for payments within China and Hong Kong Payments sent and received by value, excluding China and Hong Kong JPY CNY HKD USD AUD Jan - June 2016 Jan - June 2015 #5 #4 #5 #4 #3 #3 #2 #1 #2 #1 Three new Offshore Clearing Centres Appointed since September 2015 When it comes to handling global payments in RMB, Hong Kong stays the world s largest offshore RMB centre, processing 71% of RMB payments. Although more than 110 countries made RMB payments in June 2016, more than 90% is concentrated in 10 countries; United Kingdom does 24.4% of all offshore RMB payments and has taken over Singapore as number one offshore RMB clearing centre compared to last year, excluding Hong Kong. London and Singapore still play a key role in driving RMB adoption outside of Hong Kong but in the last years, the emergence of other RMB clearing centres worldwide, also facilitates its usage. Since September 2015, three new clearing centres have been selected by the People s Bank of China (PBOC), including Zambia, Argentina and Switzerland, leading to a total of 19 RMB clearing centres, spread across each continent. However, over the last six months, SWIFT data shows RMB adoption in most countries where an RMB clearing centre has been appointed is flat or declining, as is the case with Singapore (-37%) and Malaysia (-63%) showing the largest decrease. On the flip side, the United Kingdom (+7%), South Korea (+16%) and Canada (+124%) are showing a significant increase compared to the same period last year. Today, the PBOC has not appointed an RMB clearing centre in the United States and interestingly, SWIFT data shows that RMB adoption in the United States is marginal. However, SWIFT expects payments in RMB between China/Hong Kong and the United States to evolve following the creation of the U.S. RMB Trading and Clearing Working Group, which has a directive to promote and develop trading, clearing and settlement of the RMB in the United States. RMB as World Payments Currency Customer initiated and institutional payments. Messages exchanged on SWIFT. Based on Value. Evolution of RMB payments in economies with RMB clearing centres Payments sent and received by value, excluding China and Hong Kong. January 2014 June 2016 Jan - Jun 2015 Jan - Jun 2016 USD # % EUR # % GBP #3 9.37% JPY #4 2.50% CAD #5 1.80% AUD #6 1.75% CNY #7 1.39% CHF #8 1.38% HKD #9 1.09% THB # % SEK # % SGD # % NOK # % DKK # % PLN # % ZAR # % RUB # % MXN # % NZD # % TRY # % USD # % EUR # % GBP #3 8.73% JPY #4 3.46% CAD #5 1.96% CNY #6 1.72% AUD # CHF #8 1.52% HKD #9 1.09% THB # % SEK # % SGD # % NOK # % PLN # % ZAR # % DKK # % NZD # % MXN # % TRY # % CLP # % Please note, for the purpose of the following chart, Hong Kong has been removed from the list to show at a comparable scale the evolution of the other RMB clearing centres. +7% -37% United Kingdom Singapore -18% Taiwan +16% -7% - 30% -5% -28% +124% -63% -26% -32% South Korea France Australia Germany Luxembourg Canada Malaysia Switzerland Others* * Including South Africa, Thailand, Qatar, Zambia, Chile and Argentina 6 7

7 Official RMB Clearing Banks appointed by People s Bank of China Geographical Location and Timeline RMB Adoption across financial institutions continues to grow TORONTO, NOV 2014 LONDON, JUN 2014 FRANKFURT, JUN 2014 ZURICH, OCT 2015 MACAU, SEP 2004 HONG KONG, 2003 SEOUL, JUL 2014 Recent SWIFT data shows that 1,247 banks used the RMB for payments with China and Hong Kong, representing 40% of all institutions exchanging payments with China and Hong Kong across all currencies. PARIS, SEP 2014 LUXEMBOURG, SEP 2014 BANGKOK, JAN 2015 TAIPEI, DEC 2012 Asia Pacific leads the way with 43% adoption, followed by the Americas at Pacific (624), followed by Europe (399). Compared to two years ago, all regions In June 2016, more than 1,800 financial institutions made worldwide payments 42% adoption rate. Europe falls behind continue to show a double digit growth. in RMB, representing a 12% increase SANTIAGO, MAY 2015 JOHANNESBURG, JUL 2015 DOHA, NOV 2014 SYDNEY, FEB 2015 the Americas at 37% and the Middle East and Africa is at 34%. The majority of these institutions are located in Asia- compared to last year. 600 banks use the Chinese currency for payments without a leg with China or Hong Kong. BUENOS AIRES, SEP 2015 LUSAKA, SEP 2015 KUALA LUMPUR, JAN 2015 SINGAPORE, FEB 2013 Number of financial institutions using RMB for payments International payments sent and received directly with China and Hong Kong. +22% TORONTO 1,247 HONG KONG SINGAPORE SEOUL DOHA SYDNEY JOHANNESBURG ZURICH 1, SEP DEC FEB JUN JUL SEP NOV JAN FEB MAY JUL SEP OCT +22% 624 MACAU TAIPEI FRANKFURT LONDON PARIS LUXEMBOURG KUALA LUMPUR BANGKOK SANTIAGO BUENOS AIRES LUSAKA RMB is a strategic opportunity for most of our corporate clients. It adds several strategic benefits in managing liquidity and funding efficiently across all global business and hence, reduces risks and costs. We are seeing increasing adoption of RMB in Client s Pooling and Netting structures globally. However, client needs to be watchful regarding volatility and liquidity for onshore & offshore. For a currency to be used actively by corporations offshore, one clearly needs deep and fungible financial markets behind it. If liquidity is not available on demand, there will only be conservative offerings from the banking partners. The good news is that there is constant experimentation in this space and we continue to see progress with regards to RMB liquidity. In particular, we still need more depth in the offshore RMB market for it to be meaningful. Lack of reliable intraday liquidity sources brings tremendous volatility as we have seen recently in Hong Kong. This causes negative impact on corporate clients aspirations to use Global RMB as a trade or treasury currency. At times, there is a limited supply of intraday RMB liquidity in key offshore centres like Singapore or London. Hong Kong has a good source of RMB liquidity, but from time to time, even the Hong Kong market becomes illiquid or expensive. However, there are good positive efforts including extension of RMB clearing time in Hong Kong or CIPS in China. Corporate clients are slowly building comfort and confidence in these efforts and we see continuously increasing adoption by corporate clients for managing genuine liquidity and funding positions. C hina s Cross-border Interbank Payments System (CIPS) as a scalable and efficient clearing infrastructure aligning to international payment standards, has truly accelerated the RMB internationalisation journey. SCB is in the first batch of banks as direct participant to CIPS, and we are looking forward to phase 2 implementation through enhanced liquidity efficiency and allowing overseas participating banks to link directly. Biswajyoti Upadhyay Sandip Patil Managing Director, Regional Head Transaction Banking - Product Management & Client Access, 8 Regional Head, Global Liquidity and Investment, Asia Pacific, Treasury and Trade Solutions, Citi Greater China and North Asia, Standard Chartered Bank 9 Share of RMB users +16% AFRICA MIDDLE EAST +23% +23% JUN 2014 JUN 2016 JUN 2014 JUN 2016 JUN 2014 JUN 2016 JUN 2014 JUN 2016 JUN 2014 JUN % 34% % 43% ASIA PACIFIC % 42% AMERICAS % 37% EUROPE % 40% WORLD

8 US Dollar continues to be the leading currency for cross border payments done with China and Hong Kong Support your RMB strategy with fact-based insights At a global level, the Chinese currency continues to be the second most used currency for cross border payments done with China and Hong with a weight of 12.7% when looking at 2016 year-todate data. With a share of 63.6%, the US dollar remains the primary currency. Compared to last year, we see that the Chinese currency even lost some weight (share of 13.6%) so several years will be required to become a real alternative to the US dollar. The top RMB corridors for cross border payments in June 2016 were Hong Kong United Kingdom, Hong Kong United States and Hong Kong Singapore. This shows that Hong Kong still remains the main entry point for most of the RMB payments. 25.8% of the international RMB payments are sent between Hong Kong and the United Kingdom followed by nearly 10% between Hong Kong and the United States. W e have seen an accelerated internationalisation of the RMB through 10 acquisitions, investments and a stronger pricing power. Among the different offshore centres, Hong Kong is in a premier position to offer cross-border connectivity and product solutions. Julien Martin Head of Fixed Income and Currency Product Development, HKEX Currency usage for cross border payments done with China and Hong Kong International payments sent and received by value with China and Hong Kong. YTD June JPY 7.0% EUR 4.2% HKD 7.9% CNY 12.7% OTHERS 4.6% USD 63.6% Top RMB Corridors for Cross Border Payments International payments by value, June Hong Kong United Kingdom 25.8% Hong Kong United States 9.9% Hong Kong Singapore 6.4% The growing importance of the RMB currency and its role in financial markets is evident. Because of this, financial institutions have already started to build their RMB strategy or are planning to do so in the near future, but need more fact-based information to identify where their organisation stands. To address these issues, SWIFT Business Intelligence provides a free Monthly RMB Tracker. Furthermore, in order to obtain more granular market information and a competitive framework, SWIFT has developed a comprehensive offering: At the core of SWIFT Business Intelligence sits the Watch platform, a portfolio of online reporting and analytical tools that give customers direct and easy access to business intelligence about their financial institution and the global financial industry. For example, Watch Analytics provides customers with direct access to business data of RMB transactions allowing customers to perform a more dynamic search and analysis. In order to obtain more granular market information and a competitive framework, this can be acquired through its extended RMB Market Insights analysis report. SWIFT s RMB Market Insights report responds to the needs of SWIFT customers (both Watch product users and nonusers). With this, financial institutions can benefit from fact-based quarterly market analysis using unique data only available through SWIFT Business Intelligence. Similarly, the customised RMB analysis leverages SWIFT s unique data and provides crucial competitive and strategic insights to optimise business operations and support decision-making. 11

9 For further information about SWIFT s Business Intelligence RMB Consulting Services and the full Business Intelligence portfolio, please visit swift.com or watch@swift.com About SWIFT and RMB Internationalisation Since 2010, SWIFT has actively supported its customers and the financial industry regarding RMB internationalisation through various publications and reports. Through its Business Intelligence Solutions team, SWIFT publishes key adoption statistics in the RMB Tracker, insights on the implications of RMB internationalisation, perspectives on RMB clearing and offshore clearing guidelines, supports bank s commercial RMB product launches and provides in-depth analysis and business intelligence, as well as engaging with offshore clearing centres and the Chinese financial community to support the further internationalisation of the RMB. The SWIFT network fully supports global RMB transactions, and its messaging services enable Chinese character transportation via Chinese Commercial Code (CCC) in FIN or via Chinese characters in MX (ISO messages). It offers a suite of dedicated RMB business intelligence products and services to support financial institutions and corporates. In addition, SWIFT collaborates with the community to publish the Offshore and Cross-Border RMB Best Practice Guidelines, which facilitate standardised RMB back office operations. Please visit for more information about RMB Internationalisation or join our new Business Intelligence Transaction Banking LinkedIn group. About SWIFT SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,800 banking organisations, securities institutions and corporate customers in over 200 countries and territories. SWIFT enables its users to exchange automated, standardised financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest. Disclaimer This report is provided for information only. If the customer or any third party decides to take any course of action or omission based on this report and/or any conclusion contained therein, they shall do so at their own risk and SWIFT shall not be liable for any loss or damage, arising from their acts or omissions based on this report and/or any recommendations contained therein. Ready for RMB? More than 1,800 Financial Institutions in over 110 countries are already doing business in the Chinese currency: the Renminbi (RMB). Is yours one of them? Are you looking to understand more about RMB internationalisation, or further expand your RMB business? SWIFT s RMB Tracker provides a monthly report with a unique set of statistics to help you track and understand how the RMB is being used across geographies and financial sectors. To register for the free RMB Tracker or learn more about our RMB offering, visit or swiftforbanks@swift.com

10 For more information, visit LinkedIn: SWIFT Media contacts: Cognito +44 (0)