On February 6, Taiwan banks began accepting deposits and conducting trade between banks in yuan, two days after Chinese authorities named the Bank of China Taipei branch as the clearing bank for renminbi denominated businesses in Taiwan. Under the currency clearing system, both sides can freely conduct currency exchanges between the yuan and the New Taiwan Dollar, thereby avoiding US dollar conversions, and greatly reducing foreign exchange costs. Before the cross strait clearing system signed in August 2012 was put into use, only Taiwan offshore banking units were permitted to conduct renminbi transactions, including making remittances and deposits and extending loans. The arrangement is expected to pave the way for Taiwan to follow in Hong Kong footsteps, and become a major offshore trading center for the renminbi, according to Citibank Securities.
Singapore is another jurisdiction that saw its use of the yuan expand just ahead of Chinese New Year, with the city-state branch of the Industrial and Commercial Bank of China declared the official yuan clearing bank on February 8. The move marks the establishment of the third offshore yuan clearing center after Hong Kong and Taiwan and, while Singapore is expected to serve as a gateway to Southeast Asia, Taiwan will become a regional hub for yuan settlement and trading. Nathan Chow, an economist at DBS Bank Ltd, pointed out that Hong Kong will maintain its dominant role as an offshore center and that, rather than compete with existing yuan clearance centers, emerging centers will develop the current system of yuan internationalization in their own ways.
London is one example of an expanding offshore yuan center that, without a clearing bank of its own, cannot begin to complete with Hong Kong. But, despite having far less control over the flow of its offshore yuan because renminbi accumulated in the City of London is only able to flow into Mainland China via Hong Kong clearing bank use of the currency has increased substantially since Britain first announced the introduction of an offshore renminbi and bond market in April 2012.
During the first half of 2012, the use of renminbi for trade settlement in London increased by 390 percent from the same period of 2011, to RMB 2.2 billion (US$ 350 million). Policy chairman of the City of London Corporation, Mark Boleat, told China Daily, ecent London figures showed particularly strong growth of spot renminbi forex (foreign exchange), which is evidence of the growing liquidity of the offshore yuan market (and) the increasing confidence of investors to trade in it. /p>
With Singapore becoming the third of three major offshore renminbi centers all of which are based in industrialized economies the likelihood of the renminbi becoming a trade invoicing currency is very high, the Australia and New Zealand Banking Group wrote in a recent report. Countries across Asia are rapidly joining the ranks: South Korea recently gave its commercial banks the green light to tap into a currency swap arrangement, Japan began conducting renminbi trading in June 2012, and Dubai is well on its way to becoming a substantial offshore renminbi hub, after entering into a currency swap agreement with China in February 2012.
The Australia and New Zealand Banking Group estimated, by the end of the year, yuan deposits may climb to as high as RMB 100 billion yuan in Taiwan, RMB 250 billion in Singapore and RMB 700 billion in Hong Kong. Optimism these figures seem to say is completely founded.
