StanChart launches industry’s first benchmark yuan globalisation index

Standard Chartered Bank has launched its Renminbi Globalisation Index (RGI), the first industry benchmark that tracks the offshore yuan business worldwide and offers a quantifiable view of the latest trends as China accelerates its pace to make the yuan global.

The index broadly measures activity in the offshore yuan business in Hong Kong, London and Singapore.

It cover four key areas, including yuan deposits, dim sum bonds and certificate of deposits, trade settlement and other international payments, as well as foreign exchange, the bank said.

The RGI index showed that between December 2010 and September 2012, the internationalisation of the yuan saw a seven-fold increase. Hong Kong is dominating the business with an 80 percent share, while Singapore and London each take up 10 percent.

“Our conversations with clients reveal their keen interest of how the currency is gaining traction and to better understand how to leverage key trends for further business development,” said Karen Fawcett, Standard Chartered’s group head of transaction banking.

The bank is also considering adding potentially upcoming offshore yuan centres such as Taipei and New York to the index in coming years.

Before the comprehensive index was introduced, banks such as HSBC, Deutsche Bank, Bank of China and Citibank released their own dim sum bond indexes to track the development of the offshore yuan fixed-income market.

China initiated the offshore yuan business in 2004 in Hong Kong as a test bed for further foreign exchange reforms, but it did not really take off until a yuan trade settlement scheme was introduced and more channels of cross-border fund flows were made available.

The yuan is now the 14th most-used currency for payments, according to data from global transaction services organisation SWIFT.

Standard Chartered also conducted a survey between mid-October and early November among top managers of companies across Asia and Europe, which expressed a strong appetite for using the yuan in the next six months.

The survey found 76 percent of the respondents are either conducting yuan business already or may consider doing so within half a year, and existing users are more willing to expand their usage than non-users.

The most common offshore use of the yuan is for foreign exchange transactions driven by hedging needs.

For trade settlement, potential users are mainly eyeing benefits of better FX risk management, while existing users appreciate the improvement in timeliness or are asked to do so by onshore counterparts.

Still, there are a number of challenges to using offshore yuan. These companies cited pricing issues, currency fluctuations, scepticism towards the exchange rate system, operational procedures for settlement, limited offshore yuan use and cumbersome regulatory requirements.

“The RMB is on an irreversible journey to becoming a major international currency that will play a substantial role in international trade and central bank reserves,” said Marios Maratheftis, the bank’s global head of macro research.