- Recently opening in RMB market supports RMB chances of SDR inclusion in 2015
- RGI fell in April from March’s revised reading; benefits of a more stable CNY should be felt soon
- China opens onshore repo market; cross-border market access to improve further with MRF, QDII2
- Such measures support CNH usage, liquidity and the Renminbi’s chances of SDR inclusion in 2015
Taipei – Standard Chartered today announced that the Standard Chartered Renminbi Globalisation Index (Bloomberg: SCGRRGI ), or the RGI, fell 0.8% m/m, to 2,154 from a revised 2,171 in March. This is the first monthly drop since October 2012.
FX turnover remained the biggest index contributor in April, adding +0.8ppt to the m/m change, but down from March’s +2.5ppt. A more stable CNY exchange rate since the start of April has caused FX turnover to ease back to lower levels; however, the benefits of a steadier CNY did not yet feed through to the RGI sub-components for deposits and Dim Sum bonds in April. Trade settlement and Dim Sum bonds outstanding contributed -0.34ppt and -1.24ppt, respectively, to the m/m change, resulting in an overall drop of 0.8% m/m. April was the ninth consecutive month that Dim Sum bonds subtracted from the headline RGI reading.
Looking ahead, however, we expect offshore deposits to receive a boost from increased southbound flows via the Shanghai-Hong Kong Stock Connect programme in the coming months. We think Renminbi deposits in Taiwan are on track to reach CNY 400bn by end-2015, up from CNY 302.3bn in 2014. Across-the-board weakening in cross-border payments was possibly a delayed result of CNY volatility in Q1. We expect the RGI to start rising soon given much-improved sentiment towards the CNY and a wave of recent policy liberalisation steps.
The impending launch of the Mutual Recognition of Funds (MRF) scheme in July, and the Qualified Domestic Individual Investors (QDII2) programme possibly in H2-2015, should further boost Renminbi usage. The People’s Bank of China (PBoC) also recently granted offshore Renminbi clearing banks and other participating banks access to the onshore repo market. We expect these supportive policy measures to boost two-way cross-border flows and offshore liquidity. They also underscore Beijing’s commitment to faster capital account opening. This would strengthen the case for including the Renminbi in the IMF’s Special Drawing Rights (SDR) currency basket, which would foster further internationalisation. We see a 60% chance of SDR inclusion this year. Amid the SDR review, China’s capital account liberalisation is likely to accelerate sharply. SDR inclusion in 2015 would likely have a significant market impact, driving an immediate sharp increase in global diversification into Renminbi assets. It would likely alleviate pressure on the FX market and provide a strong boost to the Dim Sum bond market.
Standard Chartered launched the RGI in November 2012. The Index covers seven markets in offshore RMB business: Hong Kong, London, Singapore, Taiwan, New York, Seoul and Paris. It measures business growth in four key areas: deposits (denoting store of wealth), Dim Sum bonds and Certificate of Deposits (as vehicles for capital raising), trade settlement and other international payments (unit of international commerce) and foreign exchange (unit of exchange). As the Renminbi further internationalises, there is capacity to include additional parameters and markets.
Standard Chartered Renminbi Globalisation Index
The first industry benchmark that effectively tracks the progress of RMB business activity. Offers corporates and investors a quantifiable view of the latest trends, size and levels of offshore activity that are driving RMB adoption
Dim Sum Bonds and Certificate of Deposits
Trade Settlement & Other International Payments
Foreign Exchange Turnover
Base value and date
100 at 31 December 2010
14 November 2012
Weight of each of the four parameters are inversely proportional to their 24-month normalized standard deviations