Analysis of the Opportunity of London as RMB Offshore Center

时间：2022-04-19 03:34:17

Abstract. Since the director of China’s central bank Mr. Zhou Xiaochuan proposed the reform of International Monetary System， China’s RMB internationalization strategy has been taken step by step and has accomplished preliminary achievements. According to an investigation by HSBC， under the expectation of RMB appreciation， RMB has the opportunity to become the top three cross-border trade settlement currency by the year 2015， at the same time， the trade volume that will be settled through RMB will come up to one third of China’s total trade volume. Many signs show that the process of internationalization of RMB has been accelerated. London as a biggest international offshore trading center has shown an active attitude towards the RMB internationalization. This paper will focus on the analysis on the conditions， existing capabilities and opportunities of London to become an RMB offshore center. Then the paper reaches the conclusion that with the increase of London’s RMB business， London will play an important role in the RMB internationalization. In the long run， London will become the real stage of RMB internationalization.

Keywords： RMB Internationalization， Offshore Center， Foreign Exchange Transaction

1. Introduction

Since the director of China’s central bank Mr. Zhou Xiaochuan proposed the reform of International Monetary System in 2009， China has been committed tothe design and implementation of RMB internationalization strategy. RMB internationalization strategy is mainly based on the two paths， one is the use of the RMB in cross-border trade settlement； the other is the establishment of RMB Offshore market. In 2013，the accumulative total of the cross-border trade of RMB settlement business is 4630billion yuan， compared with the initial pilot in 2009 3.6 billion yuan， it has grown nearly 1286 times during five years. RMB settlement accounts for the import and export trade volume China mainland ratio has increased to about 16%. At the same time， Hong Kong， Singapore， London， Paris and so on are speeding up the construction of an offshore RMB center. As for the two paths， RMB internationalization strategy is being implemented steadily， and has achieved initial success.

2. The development of the internationalization of RMB

The essence of RMB internationalization means the progress thatRMB can transcend national boundaries， and become generally accepted pricing， trade， investment and reserve currency in the world. The Chinese government began to promote the cross-border use of RMB in 2003， and has entered a speed stage since 2012.

In the current account， China's import and export trade in the use of RMB settlement account for more than 5.5% by 2011 to 11.7%. In 2013， RMB has become the second largest settlement currency in China's foreign trade. In terms of capital projects， the RMB foreign direct investment grew 130%， more and more overseas customers have accepted RMB as the investment currency.

In 2013， the amount of outflow circulation of RMB internationalization is always higher than the inflow amount. According to China Bank estimates， compared with 2012， the net outflow scale doubled. Taking Hong Kong as an example， by the end of 2013， RMB deposits in HongKong is 860.5 billion yuan， increased 43%than the growth in late 2012. According to Bank of China， current RMB capital stock in the overseas market may have more than 1500 billion yuan. The RMB deposit pool of the overseas market expansion means to enhance the RMB overseas liquidity， to provide support for the internationalization of RMB.

According to Bank of China estimates， in the fourth quarter of 2013， dollar activity index is about 1436， 2% higher than the second quarter； the Euro index is 981， 3% less than the second quarter； the pound index is 675， 3% higher； the yen index is 422， 5% less. However， at the same time the cross-border RMB index increased from 186 to 228， growing about 23%. According to the results of the market survey published by the bank for International Settlements， the RMB has become the ninth largest foreign exchange currency. SWIFT disclosure data also show that the RMB has become one of the world's eighth largest settlement currencies. The use of RMB can enhance the possibility of reinforcing international settlement currency. The RMB internationalization entered the initial stage.

However， from a practical point of view， the RMB offshore market is still mainly relying on Honking.The supervision mechanism of RMB offshore market should have Chinese characteristics. The internationalization of RMB cannot do without an offshore RMB Centre platform. Every national currency as the world's reserve currency must be based on the developed offshore market support.

3. The basic conditions of London as RMB offshore center

London is the world's most advanced international financial center.As for the rankings of the international financial centers， London is ranked first in the world financial center， New York is ranked second， Hong Kong and Singapore are ranked third or fourth. It provides foreign exchange trading， banking， insurance， asset management and other international financial services， which comes first in the global list. London market accounts for about 20% for international credit of the world. 50% of the London Stock Exchange （LSE） trading securitiesisforeign securities. The city of London Lloyd is the world's largest insurance center， where 2/3 businesses are from overseas. London accounts for 40% of global share in the foreign exchange. The daily trading volume can reach 2 billions of dollars. If RMB can login form Europe London RMB offshore market， it will become the most important milepost of RMB internationalization. In fact， in Hong Kong，with RMB offshore financial market development， financial institutions in London have a positive role. London uses Hong Kong’s transit， and RMB business keeps growing， have become the RMB business center in Europe. According to the statistics by London Foreign Exchange Councilin 2012， among the emerging market currencies business， the product， NDF（non deliverable forward exchange rate） of RMB，was ranked third， behind Brazil Real and the South Korean Won， while the NDO （non deliverable forward foreign exchange option） product was ranked first.

3.1 The fundamental advantages of London as RMB offshore center

London as an offshore RMB Centre has advantage good： first from the time perspective， London and Hong Kong complement each other in time， providing longer trading hours for Europe， the Middle East and other areas of the business， Africa. Secondly， from the legal system， the legal system under the supervision of the investment products is more attractive to investors. Again from the UK regulatory system， the Bank of England and the UK Financial Services Authority， experience and management technology in the global reputation， the UK can provide better financial environment for the internationalization of RMB. Finally， London has a long history and excellent innovation ability about the liquidity and efficiency in the development of financial markets.

3.2 The impetus of London as a financial city

The project that RMB business center in city of London was officially launched in April 18， 2012. The plan aims to ensure broader financial market through technology， infrastructure and regulatory measures to provide direction and London RMB product market； to provide advice to the Ministry of Finance on how to expand the London trading， clearing and settle RMB products capacity of the RMB market in London. In addition， the plan can provide related consulting advices of the financial stability with the participation of members in Ministry of Finance and other relevant agencies. The implementation of this program shows that the city of London will actively promote the development of London RMB products and services， in order to play an important role in a more liquid RMB offshore market.

3.3 The cooperation between London and China government

The formationand development of China RMB offshore market are carried out in the design and planning authorities. The government try to avoid the negative impact Chinese unpredictability brings in the loosening of monetary control in the process of. The British government， regulators and the mainly involved members in financial services industry have been cooperating with Chinese relevant authorities and the Hong Kong SAR. At the same time， "the China and UK economic and financial dialogue" platform， the British authorities put forward the conception of RMB denominated financial products and services in London， and cooperation in the framework of the development dialogue. In September 2011， the two sides reached consensus on this proposal. In June 22， 2013， the people's Bank of China and Bank of England signed a bilateral currency swap agreement. In October 2013， the British finance minister， Osborn， visited China， and reached two key agreements： Britain agreed in Shanghai and RMB offshore markets and Sterling traded directly； Britain has "the RMB qualified foreign institutional investors （RQFII）" part of the credit， and has become the first to obtain the amount of RMB offshore market except Hong Kong. Thus Britain also has a policy foundation as a RMB offshore center.

4. The analysis of London’s bearing capacity as RMB offshore center

Because all the RMB products in the city of London are through bilateral trade， itis difficult to collect the information.This paper chose 13 the most active banks in RMB market in the city of Londonin 2011 as the research object. The transaction volume of 13 banks is about 85% of the market in London. This investigation deals reaction London RMB products and services. This paper takes the report presented by the data analysis of London as an offshore RMB Centre bearing capacity.

4.1 RMB deposits

The RMB deposit （cash account and deposit） is RMB offshore market development is an important evaluation index. Survey results show that the total amount of RMB deposits in 2011 in London， more than 109 billion yuan. This figure includes the following two aspects： one is the personal and corporate customer deposits， amounting to 35 billion yuan. Over the same period， Hong Kong’s CNH personal and corporate deposits amounted to 589 billion yuan. Secondly， the deposit in banks and institutions in 2011 reached 74 billion yuan. In 2012， total deposits declined （Figure 1）.

Figure 1： the total amount of deposits in London