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Foreign Exchange

RMB internationalization: From dim sum to a full Chinese banquet

The dim sum bond market gets the headlines, as deal-driven capital markets always do. But while the emergence of the offshore renminbi bond market is remarkable, the truth is that many banks are likely to make a lot more money out of the lower-profile work that flows from the internationalization of China’s currency.

Let’s set the scene: the steady opening up of the renminbi, from fastidious restriction as recently as five years ago towards full convertibility and a reserve currency probably five years in the future, is the biggest story in the world currency markets so far this century (assuming the euro hasn’t collapsed by the time you read this).

China is the world’s largest exporter, a key trading partner of every country whose economy matters worldwide. However, its currency is almost meaningless on a world scale in terms of its circulation outside its borders. The correction of this anomaly changes everything, and creates a host of work for banks along the way.

The early winners are the transaction and flow houses: banks such as HSBC, Citi, Standard Chartered and JPMorgan (through the old Chase business) on the international side, and the big commercial houses on the Chinese side – none more so than Bank of China, whose role as a clearing house in Hong Kong was instrumental in the very creation of offshore renminbi. Banks with trade finance and cash management businesses in China are the most obvious early winners.

Asia warming up to paying in renminbi
Percentage of renminbi payments made with China and Hong Kong

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