Global Securities Financing Conference – Asia Hong Kong RMB – More Than Just Another Currency ! Mr. Esmond Lee Executive Director – Financial Infrastructure Department Hong Kong Monetary Authority 1 Agenda • Role of RMB in International Trade, Foreign Exchange & Payment Market • Role of Hong Kong in Providing Clearing and Settlement Facilities for Offshore Renminbi 2 Role of RMB in International Trade, Foreign Exchange & Payment Market 3 Global Economic Growth Forecasts (% year-on-year) Real GDP Growth 2014 2015 Forecasts 2016 Forecasts Mainland China 7.36 6.76 6.30 Asia (ex-Japan) 6.0 6.0 6.0 US 2.39 3.14 3.06 Hong Kong 2.32 2.81 3.12 Euro area 0.88 1.45 1.65 Japan -0.06 1.04 1.17 • China is now the 2nd largest economy & the largest trading nation in the world. • China’s economic growth is still far ahead of the others. Source: IMF, World Economic Outlook Database, except Asia (ex-Japan) from January Consensus Forecasts 4 Polling Question : Given the following key facts of 2014: World GDP USD 75 trillion Mainland China GDP USD 11 trillion equiv. Question: How many years will Mainland China’s economy continue to grow at around 7% in real terms or around 10% in money terms? 1) 10 more years and the size of Mainland China’s economy becomes the largest in the world (at around USD 30 trillions equivalent); or 2) 20 more years and per capita GDP in Mainland China reaches the level of the contemporary developed economy level (USD 40,000 per capita GDP) or the size of economy at around USD 75 trillions equivalent, about the same size of the world economy at present. 5 RMB as World Payments Currency RMB breaking into the top five world payments currencies overtook the Canadian and Australian dollar as global payments currency in December 2014 Source: SWIFT Watch 6 Use of RMB in International Trade Jan-Dec 2014 • About 25% of Mainland’s exports and imports are settled in RMB, of which 96 % are intermediated through Hong Kong • When compared with US and Japan in terms of the percentage of trade settled in domestic currency, there is a huge potential for China trade to be settled in RMB (in RMB Bn) China trade volume 26,454 Mainland’s exports and imports settled in RMB 6,550 Mainland’s exports and imports intermediated through Hong Kong (in RMB) 6,258 7 Hong Kong’s Continuing Pivotal Role in RMB Trade Settlement Source: HKMA • In 2014, RMB trade settlement handled by Hong Kong banks amounted to RMB 6,258.3 bn, up 63% compared with 2013. • Turnover in Hong Kong’s RMB RTGS system increased further, with daily turnover reaching RMB 888 bn in December 2014. 8 Overview of Offshore RMB Markets – Ascending Importance of RMB in Global FX Market Turnover Selected currencies, daily average in April 2013(%) Selected currency pairs, daily average in April 2013 (%) 1. RMB was the 9th most frequently traded currency globally in April 2013. 1 Turnover of CNY was 2.2% of the overall turnover, an increase from 0.9% in 2010, driven mainly by the offshore CNY business Source: BIS Triennial Bank Survey September 2013 2 2. Turnover of USD/RMB were more than that of USD / HKD. 9 Continuous Growth of Offshore RMB FX Market • While the figures of BIS Triennial Central Bank Survey were a bit outdated, the recent figures derived from the RMB RTGS system indicated that the RMB FX market continued its growth momentum in 2014. • According to the BIS Triennial Central Bank Survey (April 2013): • • RMB FX turnover in offshore market was US$86 billion per day • Of which US$49 billion was conducted in Hong Kong According to a back of envelop calculation deriving from the average daily turnover of RMB RTGS in Hong Kong (US$ Bn): (A) Normal business days (B) US Holidays Turnover relating to USD (A - B) April 2013 Feb 2015 60 112 9 23 51 89 10 Growth of Offshore RMB FX Market in April 2013 and Feb 2015 BIS Triennial Back-of-envelope Central Bank Survey Calculation (US$ Bn equivalent) (US$ Bn equivalent) April 2013 49 51 Feb 2015 Not available 89 Growth rate Not available +75% 11 RMB – Major Global Currency of Tomorrow (Top 3 in each column are shaded in gradients according to their rank) Economy Currency (a) Share of global payment currency (b) Share of global trade (c) Share of global GDP United States USD 44.64% 10.43% 22.25% Mainland China CNY 2.17% 11.11% 13.23% Japan JPY 2.69% 4.03% 6.09% Hong Kong HKD 1.27% 2.88% 0.37% United Kingdom GBP 7.92% 3.15% 3.64% Germany EUR 4.88% 7.58% Euro area EUR 22.89% 17.11% n/a 28.30% Source: (a) SWIFT RMB Tracker, Dec 2014 (b) and (c) Imports, exports and GDP estimates for 2014, The World Factbook, The Central Intelligence Agency, USA 12 Role of Hong Kong in Providing Clearing and Settlement Facilities for Offshore Renminbi 13 Key Attributes of the Development of an Offshore Centre High Low Product Origination Trading Importance to the development of an offshore centre Low Liquidity Government’s involvement Settlement High 14 Development of Offshore RMB Market: Lessons Learnt from the Euro Dollar Market Similarities Differences Euro dollar Offshore RMB Background Strong global demand for Euro dollar started in 1950s Strong global demand for CNH started in 2009 Product Origination Market driven Market driven (facilitated by the PBoC’s policy relaxation) Trading Market driven Market driven (facilitated by the PBoC’s policy relaxation) Major Liquidity Providers Major US banks RMB CB Settlement CHIPS in New York RMB RTGS System in Hong Kong 15 PBoC’s Move to Expand the Offshore RMB Markets Date Economies RMB Clearing Bank Dec 2003 Hong Kong BoC(HK) Apr 2004 Macau BoC(HK) Dec 2012 Taiwan BoC(Taipei) Feb 2013 Singapore ICBC(Singapore) Jun 2014 UK CCB(London) Jun 2014 Germany BoC(Frankfurt) Jul 2014 Korea BoCom(Seoul) Sep 2014 France BoC(Paris) Sep 2014 Luxemburg ICBC(Luxemburg) Nov 2014 Canada ICBC(Toronto) Nov 2014 Australia BoC(Sydney) Nov 2014 Qatar ICBC(Doha) Nov 2014 Malaysia BoC(KL) Dec 2014 Thailand ICBC(Bangkok) • PBoC has accelerated its pace of expanding the network of RMB Clearing Banks • 10 RMB Clearing Banks were appointed in 2014 • What competitive advantages do Hong Kong have to maintain its status as a leading offshore RMB centre? 16 Continuous Growth of RMB Businesses in HK • Benefited from the well-established RMB financial infrastructure (e.g. RMB RTGS system, CMU, tendering platform and system linkage with China’s CNAPS, etc) • Hong Kong continues to provide a favourable environment for the development of a wide range of RMB businesses 2013 RMB Deposits (incl. Certificate of Deposit) at year end RMB Trade Settlement handled by banks in Hong Kong during the year RMB Debt Securities lodged with CMU 1,053 2014 ↑10% 1,158 3,841 6,258 387 407 502 888 ↑ 63% ↑ 5% outstanding at year end RMB RTGS Average daily turnover in December Source: HKMA ↑ 77 % 17 RMB RTGS System in Hong Kong Daily Turnover in December 2014 RMB 888 bn Record Turnover on a Single Day (on 28 Nov 2014) RMB 1,774 bn l Dec Nov Sep Oct 2014 Aug Jun Jul 2014 May Mar Apr 2014 Feb Dec Jan 2014 Nov Sep Oct 2013 Aug Jun Jul 2013 May Mar Apr 2013 Feb Dec Jan 2013 Nov Sep Oct 2012 Aug Jun Jul 2012 May Mar Apr 2012 Feb December 2014 RMB 888 bn Jan 2012 2011 2010 2009 RMB bn 2008 950 900 850 800 750 700 650 600 550 500 450 400 350 300 250 200 150 100 50 0 As of December 2014, the average daily turnover has increased from 45.7% comparing to last year. (Source: HKMA excluding holidays in HK, US and Mainland China) 18 Dim-sum Bond Market in Hong Kong: The Largest Offshore RMB Bond Market Outstanding RMB Debt Securities Lodged with CMU • Over RMB 944.4 billion worth of RMB debt have been issued in HK and lodged with CMU since 2007 • As of Dec 2014, outstanding RMB debt securities lodged with CMU amounted to RMB 407 billion • Issuers include CMoF, policy banks, commercial banks (from Mainland and HK), corporates (of local, mainland and multinationals) as well as super-national • The RMB bond market in Hong Kong is the largest outside Mainland China End Dec 2014 RMB 407 bn 450 400 350 300 250 200 150 100 50 0 JanAprJul Oct JanApr Jul Oct JanApr Jul OctJanAprJul OctJanAprJul Oct 2010 2011 2012 2013 2014 (Source: HKMA) 19 Closing Remarks We have to consider ourselves very fortunate that Hong Kong is a financial centre in China, of China and for China. 20 Polling Question : Given the following key facts of 2014: World GDP USD 75 trillion Mainland China GDP USD 11 trillion equiv. Question: How many years will Mainland China’s economy continue to grow at around 7% in real terms or around 10% in money terms? 1) 10 more years and the size of Mainland China’s economy becomes the largest in the world (at around USD 30 trillions equivalent); or 2) 20 more years and per capita GDP in Mainland China reaches the level of the contemporary developed economy level (USD 40,000 per capita GDP) or the size of economy at around USD 75 trillions equivalent, about the same size of the world economy at present. 21 Thank You ! 22
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