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Surging Singapore Dollar Seen Impeding Yuan Center Goal

MAS Deputy Managing Director Ong Chong Tee
Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore (MAS). Photographer: Dale de la Rey/Bloomberg

Singapore’s surging dollar risks preventing the city-state from becoming an alternative to Hong Kong for yuan deposits as locals keep their savings in the faster-appreciating currency, according to Bank of China Ltd.

While Chinese currency deposits in Hong Kong have risen 75 percent from the start of 2011, a similar trend in Singapore is unlikely given the local currency’s 6.1 percent gain against the U.S. dollar this year, the biggest among Asia’s 11 most-traded currencies, said Zhang Qingsong, the head of the bank’s Singapore branch. The offshore yuan rose 1.5 percent in 2012, compared with a 0.2 percent gain in the Hong Kong dollar, which is pegged to the greenback.

“It is the exchange rate between the Hong Kong dollar and the offshore yuan that allowed Hong Kong to gather a huge pool of funds,” Zhang said in a Oct. 18 interview. “If you want to keep the purchasing power of your savings, you choose a stronger currency. In Singapore, that won’t be the case as its dollar has appreciated greatly.”

Singapore authorities allowed the listing of yuan-denominated stocks in July and two Chinese lenders were given full banking privileges on the island this month. One will be granted permission to become an offshore yuan clearing bank, Singapore’s Ministry of Trade and Industry said in a statement in July. The yuan may become one of the world’s top three global trading currencies in the next five years, HSBC Holdings Plc said in an August statement.

Yuan Going Global

Yuan deposits in Hong Kong amounted to 552 billion yuan ($88 billion) as of Aug. 31, from 315 billion yuan at the beginning of 2011, according to data posted on the Hong Kong Monetary Authority’s website. Depositors in Singapore hold about 60 billion yuan, Ong Chong Tee, the Monetary Authority of Singapore’s deputy managing director, said at a Singapore-China Finance and Banking forum in the city in June. Beijing-based Bank of China, the fourth-largest mainland bank by market value, holds 10 to 15 percent of the deposits, said Zhang.

Cross-border trade settled in yuan will triple to 6.5 trillion yuan within three years, Janet Ming, London-based head of the China desk at Royal Bank of Scotland Group Plc, said in an interview in Dubai this month. Settlements will grow from 12 to 20 percent this year, reaching $1.03 trillion in two years, up from $330.8 billion in 2011, said Ming, who manages the desk in Europe, Middle East and Africa.

‘Increasingly Chosen’

Some 77 percent of Chinese companies surveyed by HSBC Holdings expect one-third of all Chinese trade to be conducted in renminbi by 2015 and 30 percent of them plan to use the currency for investment purposes in the next 12 months, according to a statement from the bank today. The survey also revealed 41 percent of the respondents were willing to offer discounts of up to three percent on trades in the yuan.

“It is encouraging to see the renminbi being increasingly chosen by businesses on its merits as a trade and capital investment currency,” Montgomery Ho, head of commercial banking at HSBC China, said in the statement. “We are confident that the Chinese currency is on track to become a major trade currency by 2015.”

Hong Kong is the world’s biggest offshore yuan center and accounts for 80 percent of payments in the Chinese currency, Singapore’s Business Times reported today, citing data from Swift, which operates a secure electronic network for global fund transfers between banks. London ranked second and Singapore third, according to the newspaper.

Li Ka-shing

Sales of so-called Dim Sum bonds, or yuan-denominated notes issued in Hong Kong by companies to fund expenses and expansion in China reached 143.4 billion yuan so far this year, compared with 152 billion yuan for all of 2011, according to data compiled by Bloomberg.

Dynasty Real Estate Investment Trust, backed by Hong Kong billionaire Li Ka-shing, will start trading in yuan and Singapore dollars on the city-state’s stock exchange later this month, the first to do so in the Chinese currency. The trust will offer as many as 900.8 million units at 4.40 yuan to 4.70 yuan each, according to a prospectus filed with the Monetary Authority of Singapore on Oct. 18.

MAS granted Industrial and Commercial Bank of China Ltd., China’s largest bank by market value, and Bank of China on Oct. 5 privileges to open branches or automated teller machines in as many as 25 locations across Singapore.

Gradual Appreciation

The designation of one of the lenders as a clearing bank will boost offshore yuan-denominated financial-market transactions in Singapore, said Bank of China’s Zhang. The island is the largest currency trading center in Asia after Tokyo, according to the last triennial survey by the Bank for International Settlements done in September 2010. The city-state’s average daily foreign-exchange turnover is $300 billion, according to a July 30 report from the Singapore Foreign Exchange Market Committee.

The MAS, which uses the Singaporean currency instead of interest rates to manage inflation, said this month it will maintain a modest and gradual appreciation of the local dollar to curb consumer-price gains. Inflation accelerated to 4.7 percent in September from a 21-month low in August, official data show. The authority said in April it would allow faster gains against the greenback to damp price pressures.

“I don’t expect a big increase in deposits, especially individual deposits” in Singapore, Bank of China’s Zhang said. “That means individuals or corporates may not choose to exchange Singapore dollar into offshore yuan.”

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