- Down due to lower FX turnover
- Modest rebound of offshore deposits; further CNY band widening likely in H2-2015
Shanghai – Standard Chartered today announced that the Standard Chartered Renminbi Globalisation Index (Bloomberg: SCGRRGI ), or the RGI, fell for the third consecutive month in June to 2,085 from 2,145 in May. This translates into a 2.8% m/m drop, the largest drop since its inception in December 2010. This concludes a challenging quarter for the CNH market.
The biggest drag on index was from the drop in CNH FX turnover, following a strong Q1 when the spot rate was highly volatile. The good news is that volatility has picked up again since July on the back of renewed talk of band widening. Preliminary data shows a healthy rebound in CNH FX turnover last month, which should bode well for RGI stabilisation in Q3. We are also encouraged by the underlying steadying trends in offshore deposits, cross-border payments and Dim Sum bonds outstanding. Offshore deposits contributed positively to the headline RGI for the first time in June (+0.26ppts) since February, led by Hong Kong (+CNY 20.6bn in June) and Taiwan (+CNY 1.9bn).
Stock market turmoil has not stopped China from pushing ahead with more policy liberalisation. Pilot Renminbi inbound loan schemes have been expanded to more onshore cities, while Guangdong has released an implementation plan for its Free Trade Zone. Foreign public sector entities now have easier access to the onshore market. IMF Managing Director Lagarde recently reassured investors that China’s stock market turmoil would not affect the Renminbi’s Special Drawing Rights (SDR) review, which is still on track to be concluded before this year end. We continue to see at least a 60% chance of SDR for the Renminbi this year.
We see PBoC further widening the trading band in H2-2015 while keeping CNY spot relatively steady. We believe a band widening is likely to be seen favourably as China seeks SDR inclusion. However, unlike on previous occasions of band widening, we expect Beijing to continue to foster CNY stability. Widening the CNY band only to see the currency drop materially is not in Beijing’s interests – FX rate uncertainty will likely lead to more capital outflows – and is therefore unlikely, in our view.
In addition to China’s policy push, the London Metal Exchange market also recently announced its decision to accept CNH as eligible cash collateral, joining the US Dollar, Pound Sterling, Euro and the Yen as only the fifth currency eligible as cash collateral. This is yet another key milestone in the internationalisation of the Renminbi and in line with its status as the fifth most used global payment currency.
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