Singapore Inks Direct Currency Trade, RQFII Quota With ChinaFion Li and Kyoungwha Kim
Singapore and China will introduce direct trading between their currencies, helping the city-state compete with Hong Kong and London as an offshore yuan hub.
The two nations also agreed on a 50 billion yuan ($8.2 billion) quota for financial institutions in Singapore to invest in China’s domestic securities under the Renminbi Qualified Foreign Institutional Investor, the Monetary Authority of Singapore said in a statement today. The Southeast Asian nation will be given consideration as one of the investment destinations where Chinese institutional investors will be able to use yuan to buy securities, under the new Renminbi Qualified Domestic Institutional Investor program, according to the statement.
“The ongoing internationalization of the renminbi continues to accelerate,” said Loh Boon Chye, Singapore-based deputy president for Asia Pacific at Bank of America Merrill Lynch. “Today’s announcement is the next stage in Singapore’s efforts to play a prominent role in the long-term development of this market.” Loh is also the chairman of the capital markets, fx & derivatives working group assisting the monetary authority.
The announcement comes a week after China approved direct trading between the yuan and the British pound, helping establish London as the European hub for its currency. Asia’s largest economy is seeking a greater role for the yuan in global trade and investment, and has allowed the currency to trade offshore in Hong Kong since 2010. The city holds the world’s largest offshore yuan savings pool and handles more than 80 percent of Chinese trade that’s denominated in yuan.
China started the RQFII program in 2011 in Hong Kong, allowing investors holdings the currency offshore to buy domestic bonds, stocks and money-market instruments. Regulators said in July they would expand it beyond Hong Kong and Taiwan to the U.K. and Singapore. London won an 80 billion yuan RQFII quota last week, while the pound will join the greenback, Japanese yen and Australia’s dollar as a major currency that can be exchanged directly for yuan.
The People’s Bank of China said in January that it has started preparations for the so-called QDII2, which will enable individuals to invest in overseas capital markets. The QDII program, which began in 2006, only lets investors buy securities outside of the country through asset managers and funds, and is denominated in foreign currency.
“The high profile announcement of the RQDII scheme distinguishes Singapore from other recent deals,” Australia & New Zealand Banking Group Ltd. economists led by Liu Li-Gang wrote in a note today. “It will allow Singapore to capture the outbound flow of Chinese wealth.”
Singapore doubled a currency swap with China to 300 billion yuan in March, and started yuan clearing services in May. HSBC Holdings Plc and Standard Chartered Plc sold the city-state’s first Dim Sum bonds in the same month. Yuan deposits in Singapore totaled more than 140 billion yuan at the end of July, China’s official Xinhua News Agency reported Sept. 20, citing Leong Sing Chiong, assistant managing director of the MAS.
Further details on direct currency trading will be announced separately, while new measures are being studied to allow cross-border flows of yuan between Singapore and China’s Suzhou Industrial Park as well as Tianjin Eco-City, the MAS said in today’s statement.
The announcements suggest that “under the new government led by Xi Jinping and Li Keqiang, the pace of China’s financial sector reforms, including RMB internationalization, is continuing unabated,” Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore, wrote in a research note today.
The yuan was little changed today at 6.0923 versus the greenback as of 4:15 p.m. in Shanghai, after falling as much as 0.05 percent earlier. The Chinese currency traded at 4.912 per Singapore dollar, according to data compiled by Bloomberg.
“In recent months, despite the volatility in markets at times, the authorities have committed to rolling out renminbi reform agenda,” Paul Mackel, Hong Kong-based head of Asian currency research at HSBC said in an e-mail interview today. “The longer-term implications from such measures will expand yuan usage to more of an investment-oriented currency.”