Dubai, the financial heart of the UAE, is well-placed to take on the role of regional hub for offshore RMB trade because it functions as a gateway to other countries within the GCC. The majority of regional trade with China is currently centered in the UAE, with bilateral trade reaching US$37 billion in 2012, a 15-fold increase from 2000. Trade volume is expected to reach US$100 billion by 2015.
Demand for RMB services including RMB denominated accounts which make trade settlement more convenient for companies and financial institutions is on the rise too, according to Chief Executive of Standard Chartered Bank UAE, Jonathan Morris, who also said that the RMB is ncreasingly becoming an international trade reserve currency in an interview with Gulf News.
The number of Chinese firms based in Dubai currently stands at 2500, according to the Dubai Chamber of Commerce, and as this number rises, local demand for RMB services is guaranteed to follow suit. British banks Standard Chartered and HSBC have already begun offering RMB denominated transactions for firms located within the GCC via their branches in Dubai. The two leading UAE based banks, Emirates NBD and the National Bank of Abu Dhabi along with neighboring Qatar National Bank recently opened their first branches in mainland China, after Emirates NBD became the first bank in the Middle East to issue an RMB denominated bond in March 2012.
Earlier last year, in February, China central bank signed a currency swap deal with the UAE worth RMB35 billion (US$5.62 billion), in order to support the rising demand for RMB liquidity within the UAE business community. It is one of a series of currency swap agreements that China has signed in recent years, in an effort to broaden the RMB scope as a currency for international trade settlement. Similar agreements exist with London and Singapore both offshore RMB hubs in their own right but nowhere have China efforts to internationalize its currency been more effective than in Hong Kong.
Since the city was designated the first location outside of mainland China for clearing RMB in 2009, it has generated approximately RMB700 billion in deposits and certificates of deposits: an increase of over 1000 percent. More than 30 percent of China trade is currently channeled through Hong Kong, and approximately 60 percent of its foreign direct investments were intermediated via Hong Kong last year.
During a January visit to Dubai, Norman Chan, Chief Executive of the Hong Kong Monetary Authority noted, he 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 trade with China to the fast growing offshore RMB denominated trade and investments. Chan was joined in Dubai by Jonathan Morris, Chief Executive of Standard Chartered Bank UAE, as part of an initiative to promote greater use of the RMB. Morris agreed: e see absolutely no reason why it shouldn happen. We strongly believe that the UAE has all the necessary fundamentals and is very well placed to become the hub for renminbi clearing in the Middle East and Africa.
It may have a long way to go before it can compete with Hong Kong, but there is plenty of enthusiasm for Dubai becoming a major offshore center for RMB trade. he UAE and the GCC have very huge potential in terms of bilateral trade links in the future, said Chan. his is a very exciting period with huge potential for growth".
