- High FX turnover again fuelled index, yet figure may fall in Q4 after normalisation
Taipei – Standard Chartered today announced that the Standard Chartered Renminbi Globalisation Index (Bloomberg: SCGRRGI ), or the RGI, rose 3.26% m/m in September to 2,407 from a revised 2,331 in August.
For a second month, the post-reform jump in FX turnover fuelled most of the RGI rise. Our longstanding premise is that while Beijing has no intention to artificially devalue the currency now that the CNY daily fixing reform is complete and criteria for SDR inclusion have largely been met, depreciation expectations are likely to persist in the market as long as China’s economy stays weak. The FX turnover component of the RGI is likely to reverse in Q4 after a volatile Q3 and we expect the RGI to fall in Q4-2015, notwithstanding the continued resilience of cross-border Renminbi payments.
We expect Renminbi denominated cross-border payments, which were the only product component that did not detract from the index during the summer volatility in the CNY, to remain steady after three consecutive months of resilient flows. The launch of the Cross-Border Interbank Payment System (CIPS) on 8 October, enabling more efficient clearing and settlement of cross-border Renminbi payments across multiple time zones, should further support growth in Renminbi payments.
On the other hand, CNH deposits were the biggest drag to the index. Deposits in Hong Kong dropped 8.5% m/m to CNY 895bn in September, while those in Taiwan fell 1.8% to CNY 321bn. However, we expect Renminbi deposits in Taiwan to reach c.CNY 340-350bn by end-2015. While this falls short of our previous forecast of CNY 400bn, it would still be higher than the CNY 302bn of deposits recorded at end-2014.
Looking forward, we see various new policy steps in Taiwan, Singapore and Germany that would accelerate Renminbi internationalisation. Financial regulators from Taiwan and China pledged to further deepen cooperation during a recent cross-straits dialogue and central bank announced an expansion in the scope of Renminbi business conducted in Taiwan at the end of October. In late October, Germany’s biggest exchange Deutsche Boerse AG and China Foreign Exchange Trade System (CFETS) agreed on a joint venture to host interbank products, particularly Renminbi-denominated currency and interest rate trading, which will begin trading on 18 November. Singapore also expanded the initiatives with China including the Suzhou Industrial Park and the Singapore-Sino Tianjin Eco-City, which should further increase flows through Singapore.
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
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