Dubai: The UAE has huge potential to become a regional hub for the off-shore renminbi (offshore RMB) trade, said a senior official from Hong Kong Monetary Authority who is on a roadshow in Dubai on Monday.
“The UAE is a regional trade hub for the Middle East and North Africa region. The country has the necessary financial infrastructure to link up the entire region’s trade with China to the fast growing off-shore RMB denominated trade and investments, “ said Norman T.L Chan, Chief Executive of Hong Kong Monetary Authority.
China as part of internationalising the RMB (yuan) began trade settlement in RMB in a limited way using Hong Kong as the offshore RMB business centre. Currently more than 30 per cent of Mainland China’s trade is intermediated through Hong Kong. Last year some 60 per cent of China’s foreign direct investments originated from or through Hong Kong and China’s overseas direct investments were made through Hong Kong.
Hong Kong Monetary Authority is currently working with various international financial centres such as London and Singapore to function as regional hubs for off-shore RMB trade.
“Until recently Hong Kong was the only hub for off-shore RMB trade. We want more regional financial centers to develop as regional hubs for RMB-denominated trade settlements to facilitate direct trade with China,” said Chan.
A few banks operating in the UAE are currently offering RMB denominated accounts to help corporates, SMEs and financial institutions to settle their trade and facilitate investments using the off-shore trade settlement route.
“RMB is increasingly becoming an international trade reserve currency. Over the past few years we have seen a significant increase in demand for RMB services in the UAE,” said Jonathan Morris, Chief Executive of Standard Chartered Bank UAE.
To support the growing demand for RMB liquidity among the UAE business community last year China and the UAE signed a currency swap agreement worth RMB 35 billion ($5.54 billion).
China has signed a series of currency swap agreements in recent years with key trading partners in a bid to boost the use of the yuan for the direct settlement of international trade. Bankers say the scope of off-shore RMB settlements are fast catching up as demand for foreign direct investments into China and RMB denominated fund raising from the international markets are gaining momentum. “Demand from offshore RMB is on the rise from traders, investors and all those looking to raise money. Last year more bonds were issued in Hong Kong in RMB than in any other currency,” said Benjamin Hung Pi Cheng, Chief Executive of Standard Chartered Bank, Hong Kong..
With the opening up of Chinese market for investments, bankers expect huge rise in demand for off-shore RMB. China announced the RMB Qualified Foreign Institutional Investors, or RQFII, program in December 2011, which allows offshore yuan to be invested in China’s domestic securities. The available quotas were boosted by 200 billion yuan to a level of 270 billion yuan in November. Recently Guo Shuqing, chairman of the China Securities Regulatory Commission, said in Hong Kong that the ceiling can be increased by 10 times more.
