China Names ICBC Singapore Clearing Bank to Boost Yuan Role

The Industrial & Commercial Bank of China Ltd. won the right to clear yuan transactions in Singapore as the world’s second-biggest economy seeks to boost use of its currency in global trade and finance.

The People’s Bank of China approved the Singapore branch of ICBC, as the world’s largest lender by market value is known, as the clearing bank in the city state, according to a statement on the monetary authority’s website. Singapore will become the third offshore yuan center after Hong Kong and Taiwan.

The announcement came two days after Taiwan’s lenders started accepting deposits and conducting interbank trading in the Chinese currency. Singapore authorities gave full banking privileges to the two lenders in October, after allowing the listing of yuan-denominated stocks in July.

The appointment “marks a key milestone in the growing financial cooperation between the central banks of China and Singapore,” Ravi Menon, managing director of the Monetary Authority of Singapore, said in a statement today. “It will enable Singapore’s financial center to play a useful role in facilitating greater use of the renminbi for trade, investment and other economic activities in the region.”

This is the first time ICBC has won yuan clearing rights overseas. Bank of China Ltd. was selected for the role in Taipei and Hong Kong. The yuan is a denomination of the renminbi.

Offshore Hubs

China has pledged to support offshore yuan hubs as it encourages greater international use of its currency. Hong Kong has been accepting yuan savings from individuals since 2004 and offshore trading of the currency began in the city in 2010. London is the destination for companies including China Construction Bank Corp. and HSBC Holdings Plc to list their yuan-denominated bonds.

“While there seem to be increasingly more offshore yuan centers, I would expect the market to get bigger as well,” Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong, said by telephone today. “Singaporean investors have been quite active in past dim sum bond subscriptions. Demand for yuan products in Singapore is big.”

Yuan deposits held in Hong Kong rose 5.6 percent in December to 603 billion yuan ($97 billion), an 18-fold jump from five years ago, according to official data. Taiwan’s banks held 1.3 billion yuan of deposits on Feb. 6, when clearing of the currency started, the central bank said yesterday.

Trading Partner

Singapore 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. Its average daily foreign-exchange turnover is $300 billion, according to a July 30 report from the Singapore Foreign Exchange Market Committee.

China was Singapore’s third-largest trading partner after Malaysia and Europe in 2012. Trade between the two countries rose to S$104 billion last year from S$95 billion in 2010, and accounted for more than 10 percent of Singapore’s total, according to the city-state’s trade promotion agency.

The U.K. is also seeking to move into yuan trade, with the Bank of England saying last month that it is ready “in principle” for a currency-swap agreement with the Chinese central bank. Chancellor of the Exchequer George Osborne is pushing for London to become an offshore center for yuan trading to deepen links with China.

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