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London-Hong Kong RMB Forum Holds Second Meeting

by Mary Swire,, Hong Kong

07 December 2012

The private sector-led Hong Kong-London Forum, which was established in January this year to promote closer collaboration between Hong Kong and London in support of the wider international use of the renminbi (RMB), held its second meeting in London on December 4, 2012.

The establishment of the Forum was announced by George Osborne, the UK Chancellor of the Exchequer, and Norman Chan, the Chief Executive of the Hong Kong Monetary Authority (HKMA), in January 2012. The first meeting of the Forum was held in Hong Kong on May 22.

The second meeting was attended by senior representatives of the London and Hong Kong offices of ten banks, including Barclays, Bank of China, China Construction Bank, Citibank, Deutsche Bank, HSBC, Industrial and Commercial Bank of China, J.P. Morgan, Royal Bank of Scotland and Standard Chartered Bank. The UK Treasury and the HKMA acted as facilitators, with the Bank of England and the UK Financial Services Authority attending as observers.

The Forum participants reviewed the latest developments in the international RMB market. It was reported that activity has continued to broaden and deepen in both London and Hong Kong with turnover rising in a number of market segments, with, for example, daily turnover in Hong Kong’s RMB Real Time Gross Settlement (RTGS) system, which serves the global RMB market, reaching RMB250bn (USD40bn).

Significant progress was also reported in taking forward the action items agreed in the last meeting, including raising the awareness of corporates regarding the use of RMB, both individually and collectively, and through collaboration by their Hong Kong and London offices.

Those efforts have contributed to a significant increase in interest from corporate customers in using RMB to conduct trade and investment transactions with mainland China, and survey evidence suggests that corporates are finding it easier to access overseas RMB products and services. There has also been a substantial increase in RMB corporate accounts and foreign exchange trading in both the London and Hong Kong markets over the course of this year.

In addition, banks in London and Hong Kong have been taking advantage of the lengthened operating hours of the RMB RTGS system in Hong Kong, by extending their internal cut-off times for handling RMB transactions with customers and other banks. The operation has been smooth, with average turnover during the late operating hours providing an additional RMB2bn per day.

Meanwhile, eight banks joined (and more are in the process of doing so) the cross-border collateral management system developed by the Central Moneymarkets Unit (CMU) of the HKMA, JP Morgan and Euroclear, and the first RMB repo transaction was conducted on December 3. Additionally the CMU is working to launch a similar service on the Clearstream platform in the first quarter of 2013 to facilitate cross-border repo transactions.

Cross-border interbank RMB activities between Hong Kong and London have been developing progressively, deepening the integration between the two markets. London now accounts for the largest amount of RMB payments conducted with Hong Kong and mainland China, and all Forum banks have started to provide direct foreign exchange quotes of RMB to clients against GBP, EUR and a number of other currencies.

A number of banks have also launched various benchmarks and indices to facilitate investments in the offshore RMB market. Certain standard market documentation (such as ISDA agreements) has been enhanced to cater for RMB transactions.

Looking ahead, the Forum participants agreed that it will be essential for banks to continue to enhance their services to customers to facilitate wider participation in the offshore RMB market. To promote wider use of RMB by corporates and financial institutions, Forum participants called for further enhancement of the arrangements for two-way cross-border flows of RMB between the onshore and offshore markets. At the same time stronger business links between financial institutions in different financial centres should be fostered, they said.

The Forum participants agreed to expand marketing initiatives, focusing on providing more tailored services and advice for more European corporates to facilitate their use of RMB in trade settlement and investment, and to extend this work to other markets including Latin America, Africa and the Middle East.

They also noted that existing solutions to mitigating RMB foreign exchange settlement risk are currently working well. However, taking into account growing foreign exchange turnover in relation to their foreign exchange settlement risk limits, they agreed to accelerate work to investigate further medium- and long-term solutions to addressing foreign exchange settlement risk through global best practice, including an increased use of bilateral netting (where swap agreements between two parties are consolidated into a single agreement) and existing or new organized settlement arrangements for foreign exchange transactions.

Furthermore, they welcomed the increasing number of banks contributing offshore RMB interbank rates, and agreed that it would be important to develop credible and well founded interest rate fixings for the offshore RMB market’s future growth.

Following the Forum’s meeting, a special session on the use of RMB by corporates, attended by over sixty corporate treasurers, was held in London to discuss the experience of European companies in denominating trade with China in RMB and the wider array of RMB products and services available in the global market.

TAGS: investment | business | banking | financial services | China | United Kingdom | offshore | offshore banking | Hong Kong | currency | services

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