The Rise of the Renminbi. Hong Kong & Malaysia Court Banks For Global RMB Business

The Hong Kong Monetary Authority has announced the initiation of a dialog between itself and Malaysia's private sector in order

The power of the Chinese economy is in little doubt within the boardrooms of neighboring Far Eastern neighbors and western nations alike, however the inability to use Chinese currency to do business abroad, or indeed settle trades in renminbi (RMB), the Chinese sovereign currency, has hampered attempts to access the much vaunted market.

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Unleashing the trading potential of this particular Asian Tiger into non-aligned overseas markets in the region may prove to strengthen the ability to pioneer the use of RMB in trade settlement, as announced by the Hong Kong Monetary Authority (HKMA) on Thursday last week.

In what could be considered a very unusual step, a dialog has been established between the Malaysian Private Sector and the HKMA on offshore RMB business, the first such meeting taking place in Kuala Lumpur on Thursday.

Strengthening of International Collaboration on RMB

This dialog was established following the agreement by the HKMA and Bank Negara Malaysia (BNM) in August 2013 to strengthen the collaboration between Hong Kong and Malaysia in the area of RMB business. It was attended by senior representatives from 10 Hong Kong and Malaysian banks. HKMA and BNM officials facilitated the discussions during the meeting.

The interest and participation in the first meeting of the dialog reflected the strengthening of trade and investment links between Mainland China, Hong Kong and Malaysia.

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According to the HKMA, Malaysia is China’s largest trading partner within the Association of Southeast Asian Nations (ASEAN) region, while outward direct investments from China to Malaysia has also increased rapidly in recent years.

To facilitate the associated increase in the demand for RMB trade settlement and investment opportunities, the dialog is intended to be a platform through which Hong Kong and Malaysian financial institutions can deepen their cooperation and enhance their collective capabilities in providing RMB products and services.

Dialog participants reviewed recent developments in the offshore RMB markets in Hong Kong and Malaysia, and agreed to enhance collaboration to further develop the market in the following areas:

  • To strengthen efforts in raising awareness amongst corporations about the use of RMB in trade settlements and investments.
  • To expand business relationships between banks in Hong Kong and Malaysia, with the view to further optimising liquidity conditions in the two financial markets.
  • To assess market infrastructure needs and consider appropriate market responses in developing offshore RMB products and services to meet emerging market demand.
  • To promote the development of the offshore RMB sukuk market, leveraging on the respective strengths of Hong Kong and Malaysia in RMB business and in Islamic finance respectively.

Potential Increase in RMB Liquidity

In July this year, the HKMA made made two enhancements to the provision of renminbi liquidity to authorized institutions participating in renminbi business in Hong Kong. two enhancements to the provision of RMB liquidity to authorized institutions participating in RMB business in Hong Kong, representing one of the initial stages in facilitating slightly more free trading in RMB in a global environment, as well as allowing the Singapore Exchange to trade shares of corporations in RMB.

As with so many attempts to further Chinese business into regions with global reach, the dialog is likely to be long and drawn out, with the next meeting to take place during the coming year at a date which has not yet been formalized.

 

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