GOOD AFTERNOON EVERYONE I WANT TO TALK ABOUT CURRENCIES AND SDR BONDS TODAY SOO LET’S GET STARTED. THIS WAS SENT TO ME BY JOSEPH THIS MORNING AND I THINK WE SHOULD HAVE A LOOK. WHILE I’M ON THE TOPIC I SEE I HAVE MANY NEW PEOPLE HERE AND I WOULD LIKE TO SAY WELCOME AND INVITE YOU TO REGISTER TO HAVE OUR BLOGS SENT TO YOUR EMAIL. YOU CAN ALSO USE THE CONTACT FORM TO SEND ME MESSAGES OR LINKS TO THINGS YOU WOULD LIKE TO TALK ABOUT. ALRIGHT LET’S GET TO IT.
Standard Chartered gets approval to issue SDR bonds in China
Oct 14 Standard Chartered Bank (Hong Kong) said on Friday that it has obtained approval from the People’s Bank of China to be the first commercial issuer of bonds denominated in Special Drawing Rights (SDRs) in China’s interbank bond market.
VERY NICE, LET’S SEE IF THIS OFFERING SHOWS MORE INTEREST THAN THE LAST ONE. WITH STANDARD CHARTER BEING ABLE TO TAKE THIS OFFERING COMMERCIAL.
The size of the issuance is 100 million SDRs, or about 925 million yuan, and the bond will be settled in the yuan, the bank said in a statement.
The International Monetary Fund (IMF) included the Chinese currency in its SDR currency basket on Oct. 1 in line with the growing importance of the yuan in international trade and finance, and as a reflection of China’s global economic heft.
“The inclusion of the yuan helps reduce the volatility of SDR’s exchange rate and therefore makes the value of SDR more stable,” said Wesley Yang, head of Financial Markets of Standard Chartered China.
“These SDR bonds, to be settled in RMB, will help promote SDR financial instruments, provide a channel for investors to invest in foreign currency bonds in the onshore market, and offer more diversified bond products in the market.”
A unit of the World Bank issued the first SDR denominated bond in China’s interbank bond market in August.
SDRs are an international reserve asset created by the IMF. The value of the SDR is based on five major currencies, namely US dollar, euro, Japanese yen, British pound, and the newly added Chinese yuan.
THIS IS MORE FORWARD MOVEMENT WITH THE RMB AND NOW IT’S GOOD TO SEE IT BEING OFFERED OUTSIDE THE WORLD BANK. SO LET’S LOOK AT THE RMB FROM A DIFFERENT POINT OF VIEW, IS THE RMB STILL CONSIDERED AN EMERGING CURRENCY? LET’S LOOK.
RMB: no longer an emerging currency
China October 13 2016
Over the last few years, the opportunities for investing internationally and domestically in RMB have continued at pace. RMB’s longer-term potential has been recently further reinforced by its inclusion into the basket of currencies that constitute the International Monetary Fund’s Special Drawing Rights.
The expanded role of RMB in cross-border trade settlement is a key driver to RMB internationalization. Investment channels have been expanded, the onshore financial markets have opened to foreign participation, and a series of mutual recognition programs allow investors to invest in one another’s onshore and offshore markets. Two-way channels also allow companies to sweep money on and offshore between affiliates.
The stock market correction of 2015 and the subsequent devaluation of the RMB gave rise to short-term currency volatility and some skepticism about the RMB’s longer-term trajectory, but despite this the currency’s global status seems assured. In our discussions with investors and market participants, we note a clear move towards a longer-term and more in-depth assessment of the potential role of RMB as an influential global currency. Our view remains that it is no longer a question of whether the RMB will become a global currency, but when it will do so.
Increased use of RMB
The RMB is now a core global currency with wide acceptance and use. It is the second most active currency for cross-border payments with China and Hong Kong, and the sixth most widely used currency for global trade with a share of 1.72% of global payments by value, and growing fast. At the end of 2015, more than 1,800 financial institutions worldwide were using yuan for payments, representing an annual increase of 12%.
In 2015, Chinese investors invested a total of 736.3 billion yuan overseas, up from 186.6 billion yuan in 2014, representing nearly a three-fold increase. The volume of cross-border RMB receipts and payments reached 12.1 trillion yuan in 2015, representing an annual increase of 21.7%.
Continued market development and innovation
The opening up of China’s domestic bond market (CIBM) has created a surge in the issuance of panda bonds by foreign corporates and sovereigns. In the first three quarters of 2016, nearly RMB 80 billion (USD 12 billion) panda bonds have been issued across 29 deals, surpassing dim sum bond issuance for the first time.
(YOU REMEMBER WHAT A PANDA BOND IS RIGHT? IT IS A RENMINBI DENOMINATED BOND ISSUED BY A NON CHINESE USER)
China has also opened up its cards market. Previously, all RMB payments had to be cleared through China Union Pay, a network created by the central bank, which accounted for 72% of total transaction value in 2014. In 2015, China’s cabinet stated that foreign firms will be allowed to operate bank card clearing businesses. Rules regulating such businesses have been released by China’s central bank recently, potentially giving multinationals like Visa and MasterCard access to China’s 22 trillion yuan card payment market.
The recent introduction of the credit default swaps (CDS) in China’s interbank market will allow investors to better manage and hedge their financial investments in China and nurture the healthy growth of the Chinese financial markets.
China’s financial infrastructure is maturing with RMB internationalization. In late 2015, the China’s central bank launched the Cross-border Interbank Payment System (CIPS), a SWIFT-like system that provides clearance and settlement services for cross-border RMB transactions. More recently, SWIFT and CIPS entered into a memorandum of understanding to develop China’s payments systems.
Between 2014 and 2015, China appointed an additional 16 branches and subsidiaries of major Chinese banks to be official RMB clearing banks worldwide facilitating the effective settlement and clearance of offshore RMB trades. There are now over 20 such clearing banks with the most recent appointment being made in New York.
RMB’s development also embraces technology and innovation. China is the world’s largest and fastest-growing e-commerce market, where sales are expected to reach $899.09 billion this year, representing 47% of all such sales worldwide. The rapid growth is fueled by China’s online payment systems such as Alipay and Wechat Pay. China’s central bank has taken a keen interest in digital currency, and has set up a team with a view towards launching a digital legal tender in the near future.
China’s opening up policy has improved its financial influence on the world stage. The inclusion on 1 October 2016 of the RMB in the IMF’s SDR basket of currencies made it the fifth currency to have this status conferred upon it – reflecting progress made by China in reforming and improving its monetary, foreign exchange, financial systems and markets.
In August 2016, the World Bank issued the first SDR-denominated bonds in China, representing a vote of confidence in China’s financial markets.
Following the footsteps of the Shanghai-Hong Kong stock connect and the recent announcement of the Shenzhen-Hong Kong stock connect, Shanghai and London have been discussing a similar link between the London and Shanghai exchanges. While Brexit has delayed the process, both sides have re-iterated their commitment to the project.
The Australian Securities Exchange has supported RMB cash settlements by providing real-time straight-through-processing links to China, Hong Kong and the rest of the world. Recently, ASX launched an RMB securities depository service, providing full end-to-end support for the issuance, settlement and holding of RMB-denominated securities
Discussions around the role of the RMB need to be framed in the context of its steadily going influence and its growing role as a global trade and investment currency.
The RMB can no longer be regarded as an “emerging currency”. More sophisticated investment channels are coming on line regularly while others (such as QFII and RQFII) are well-known and understood by the international investment community.
Developments such as the opening up of the CIBM and the potential inclusion of Chinese shares into the benchmark indices of global index providers are very much welcomed. The Chinese government will need to continue its efforts not only to liberalize the capital account but to work towards building the trust and confidence of global investors.
For many international investors the discussions should now be turning to how best to tackle this complex market – which investment channels will yield the best opportunities going forward, and how can risks be managed. For financial institutions and companies that invest in their RMB capabilities and platforms the outlook is bright.
SO IT WOULD SEEM THAT CHINA’S FINANCIAL MARKET IS ALL GROWN UP NOW. AND WE WATCHED IT GROW RIGHT HERE. THESE ARE ALL POSITIVE STEPS NEEDED IN THE REALIGNMENT OF THE MONETARY SYSTEM.
I AM VERY INTERESTED TO SEE THIS NEXT OFFERING OF SDR BONDS AND HOW PIQUED THE INTEREST IS FOR THEM SO PLEASE LET’S KEEP OUR EYES OPEN FOR THE DATE OF SALE AND LET’S SEE IF THE APPETITE FOR SDR’S IS GROWING.
REMEMBER IF THERE IS ANYTHING YOU WISH TO TALK ABOUT JUST DROP IT IN THE COMMENTS BOX BELOW AND SEND IT TO ME. WE ARE GOING TO MOVE ON TO CURRENCIES NEXT I WANT TO SHOW YOU SOMETHING THAT INDIA DID WITH THEIR LARGE NOTES.
BE BACK INA BIT.
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