Singapore tops offshore Renminbi trade

Bank of China tower Hong KongThe rise of renminbi trading has been hailed as one of the greatest developments in international finance for a century and Singapore takes the lead as the centre for offshore trading of China's official currency.

Renminbi (RMB) became the seventh most used currency for international payments, partly boosted by trading hubs springing up around the world and driving interest in the official currency of China. Toronto and Sydney are the latest two cities taking advantage of swelling money flows and increased liquidity.

The higher liquidity should result in more competitive pricing and less volatile price action, leading to more tradable trends. This should allow traders to take positions in RMB in an attempt to trade China’s economy.

Trading hubs also allow easier access for business agreements and deals between China and other nations, boosting international business and edging the RMB closer to full globalisation.

The absence of a direct currency swap complicates matters by forcing businesses in different nations to convert invoices and payments through a proxy currency, usually the US dollar, and banks often take a cut of the transaction. A direct currency trade eliminates those complications.

London was the world centre of RMB trading in 2013, however, earlier in the year, Singapore, Asia’s largest foreign exchange (FX) trading centre, became the largest offshore trading centre for RMB-denominated currency payments.

Recent data from Swift, the global payments system, shows that Singapore continues to lead and, based on the October report, shows the value of RMB trading has increased by 574 per cent so far in 2014 compared to last year.

Furthermore, Singapore looks set to increase its lead as direct trading between the Singapore dollar and RMB was allowed for the first time on October 28th. The very first day of trading saw flows of around 700 million Singapore dollars across the board, a very positive start.

Henry Chang, head of OCBC China Treasury at OCBC Bank, said: "The Singapore dollar is one of the major currencies in Asia and the Chinese RMB has become one of the most popular settlement currencies in terms of payments. So these two currencies together should have greater potential than other currencies.

"If the governments can allow the derivatives market to be developed in the future, I think it will help this currency pair to develop," he added.