Renminbi in the United States and Canada RMB Tracker Contents October 2017

Home , Cent (currency)

RMB Tracker SPECIAL EDITION October 2017

Pacific Reach: Renminbi in the United States and Canada RMB Tracker Contents October 2017

Foreword 3

Living in a dollarised world 5

US dollar - Most active currency globally 5

No significant correlation between economic size of a country and currency usage 7

RMB usage in the Americas is low 8

Slower offshore RMB adoption compared to the rest of the world 8

Enablers needed to support RMB usage with the U.S. 11

Good foundation for growth, but adoption still nascent in Canada 11

High dependency on Hong Kong for RMB clearing 12

Industry commentary - Official Monetary and Financial Institutions Forum 13

SWIFT Leah Capili Joanna Forman Stephen Grainger David Lefferts Sarah L’Ortye Laetitia Moncarz Michael Moon Astrid Thorsen

2 RMB Tracker Foreword October 2017

With Sibos taking place on Connectivity to the global economy Broader connectivity to RMB markets is 16-19 October in Toronto, essential and is a recurring theme. China is I am delighted to present a making great progress with the inclusion of China’s stock markets in the MSCI benchmark special edition of the SWIFT index and the recent launch of its “Connects” RMB Tracker. The tracker that open up the country’s bond and stock markets to offshore investors. China is presents a monthly ranking and making it easier for banks to service their weighting of the renminbi (RMB) customers in RMB, which will only improve the compared to other currencies internationalisation of the currency. Through continuous development of RMB clearing worldwide. Special editions, centres, along with improved and streamlined Alain Raes such as this report, provide access to China’s Cross-border Interbank Chief Executive, APAC & EMEA, SWIFT Payment System (CIPS) and to bond and our community with a greater, stock markets (“Connects”), we continue more in-depth understanding to see the currency progress. In parallel, connectivity is also enhanced as major about currencies and how they Chinese banks are investing in cross-border are used for payments with a payments innovation through the SWIFT gpi1 service. SWIFT gpi provides Chinese specific focus on the RMB and banks’ customers with a same-day payment its adoption. experience around the world.

Supporting products and services In this paper we examine the shifting usage of Financial institutions will need to continue different global currencies. While the US dollar optimising products and services for their remains the dominant currency of choice, customers to support further growth. Tools some of the more mature currencies, such as such as business intelligence, clearing code the euro, have seen a significant increase in reference data, messaging conversion and usage. While the enablers for RMB usage in networks form part of the foundation for the Americas are increasingly present, usage growing the global footprint of the RMB. For of the RMB remains far lower than in other example, CIPS membership information is now regions. The recent nomination of the Bank available in SWIFT’s reference data platform, of China (BOC) as an official RMB clearing SWIFTRef2, which will enable easy access bank for the United States may change the to CIPS data, thus facilitating transactions trajectory of RMB adoption in the U.S. market. between China and the rest of the world. In Canada, recent data shows that since the Industrial and Commercial Bank of China Ongoing focus on standards and (ICBC) started operating the RMB clearing compliance centre in Toronto in 2014, the RMB flows A global currency requires ongoing industry between China/Hong Kong increased by 67%. focus on efficiency, automation and global However, for both countries, the vast majority message standardisation. As part of the of RMB flows are still cleared in Hong Kong, journey, compliance with local and global China and the United Kingdom. regulations is ever more important. This report uses August and September I hope you find this Sibos special edition of 2017 statistics and analysis from SWIFT. It the SWIFT RMB Tracker insightful. Despite also includes insights from financial industry the growing importance of RMB globally, the experts on the recent evolution of the RMB world is still highly dollarised. Liberalisation and other currencies for cross-borders flows. of capital markets in China, and initiatives such as the Belt and Road – over time, will contribute to strong foundations for further RMB globalisation.

1 For more information: https://www.swift.com/our-solutions/global-financial-messaging/payments-cash-management/the-swift-gpi- customer-credit-transfer 2 SWIFTRef is SWIFT’s unique global reference data and financial information utility. Sourcing data from official data authorities and 3 data issuers in over 200 territories, SWIFTRef provides the most accurate and up to date payment reference data. Key highlights RMB Tracker October 2017

1.85% 39.79%

While the United States accounts for about 25%3 of global 93.7% GDP, the US dollar is used for almost 40% of payments, 93.7% of RMB payments by value, initiated in the U.S. by value. In comparison, China accounts for about 15%3 & Canada and ending in China/Hong Kong are cleared of global GDP, and the RMB is used for less than 2% of in Hong Kong. payments in value. 1 107 USD Ranked #1: as a world payments currency with 107 financial institutions in North America (49% of 39.79% share by value. SWIFT connected financial institutions) are using RMB for payments with China/Hong Kong. 67% 70% 67% 67% of RMB payments sent by 70% of cross-border payments, by 67% growth in RMB traffic the U.S. have China as the final value, sent between Canada and between Canada and China/Hong beneficiary, with only 23% for Hong Hong Kong/China are made using Kong since the RMB offshore Kong. Other countries have higher the Canadian dollar, followed by clearing centre opened in Toronto usage of RMB outside China/Hong the RMB at 15% with the US dollar (November 2014). Kong (e.g The United Kingdom). accounting for only 1%.

3 According to 2016 statistics from the World Bank https://data.worldbank.org/data-catalog/GDP-ranking-table

4 RMB Tracker Living in a dollarised world October 2017

US dollar - Most active currency globally

As recently as three years ago, experts were for nearly 9 out of 10 foreign exchange These data points have also led Scandinavian predicting the rapid demise of the dollar’s transactions globally. BIS General Manager bank, Skandinaviska Enskilda Banken (SEB), dominance – “The dollar’s 70-year dominance Jaime Caruana noted that as a means to conclude that “although long-term forces is coming to an end”, The Telegraph4 in of exchange, the dollar is on one side of will reduce dollar dependence, it may well the United Kingdom opined in 2014. The more than 87% of foreign exchange market take 10-20 years before any currency can thinking was that with new RMB clearing transactions. seriously threaten US dollar dominance.”5 hubs being set up around the world and with developments such as the launch of the new Moreover, the US dollar’s role as a reserve The US dollar is not the only currency used BRICS Bank, the global payments system currency has also been ensured by the for international payments and clearing. The was supposed to be moving inexorably dominance of the US capital market, which euro’s share in global payments increased towards greater usage of the RMB and a accounts for about 40% of the world’s last year, for instance, with data from SWIFT decline in usage of the US dollar. debts denominated in US dollars. Brookings showing that the euro’s share by value of Institution fellow and former US Federal global international payments increased While RMB usage increased for a period Reserve Board Chairman Ben Bernanke also from 28.63% in 2015 to 33.05% in 2017. of time and use of the US dollar fluctuated, noted last year that about 60% of international SWIFT data also shows an increase of the the RMB has not grown nearly as much reserves are held in dollar-denominated Japanese yen for international payments. The as expected and the US dollar remains the assets. British pound is another popular currency for dominant currency for international trade payments, but experienced a decline in 2016, and payments. Data from the Bank for Consequently, the US dollar continues to play possibly a symptom of the depreciation of the International Settlements (BIS), for instance, a key role in international trade and finance, pound following the UK referendum on EU shows that that the US dollar accounts ahead of the RMB, euro or other currencies. membership in June 2016.

September 2015 September 2017

1 USD 43.27% 1 USD 39.79% 2 EUR 28.63% 2 EUR 33.05% 3 GBP 9.02% 3 GBP 7.43% 4 JPY 2.88% 4 JPY 3.10% 5 CNY 2.45% 5 CAD 1.86% 6 CAD 1.81% 6 CNY 1.85% 7 CHF 1.62% 7 CHF 1.62% 8 AUD 1.54% 8 AUD 1.50% 9 HKD 1.12% 9 HKD 1.30% 10 THB 0.94% 10 THB 1.01% 11 SEK 0.93% 11 SGD 0.85% 12 SGD 0.90% 12 SEK 0.84% 13 NOK 0.69% 13 VEF 0.80% 14 PLN 0.53% 14 NOK 0.72% 15 ZAR 0.45% 15 PLN 0.54% 16 DKK 0.43% 16 ZAR 0.45% 17 NZD 0.40% 17 MYR 0.41% 18 MXN 0.36% 18 NZD 0.36% 19 TRY 0.22% 19 DKK 0.36% 20 HUF 0.21% 20 MXN 0.31%

Currency’s share as an international payments currency Customer initiated and institutional payments. Messages exchanged on SWIFT. Based on value. MT 103, MT 202, domestic and cross-border

Source: SWIFT Watch

4 The Telegraph - The dollar’s 70-year dominance is coming to an end – By Liam Halligan

5 Seb group - Nordic Outlook - September 2017

3 According to 2016 statistics from the World Bank https://data.worldbank.org/data-catalog/GDP-ranking-table

5 RMB Tracker October 2017

Usage of the RMB has declined over the past or other purchases, the government has put The government measures to tighten two years and the RMB fell to below 2% of measures in place to reduce the outflow of capital controls and curb capital outflows global payments in 2016, nearly one-third lower RMB. as policymakers worked to steady the than the previous year. Although the RMB has RMB are also likely to be reduced once experienced modest growth in recent months Another is a decline in usage of letters of outflow pressures are under control, with the its upward trend is no longer as certain as it credit (LCs), especially those denominated government then recommitting to its drive to was in the past. At the end of September 2017 in RMB. LCs are declining significantly, with support growth in international usage of the the currency represented 1.85% share of global data from SWIFT showing a 33% drop in RMB. payments. their use globally between January 2014 and June 2017. That drop has been even more And beyond the trade and economic When looking at cross-border payments only pronounced for RMB-denominated LCs, with factors, national ambitions also play a role. and excluding intra Eurozone payments, the SWIFT data showing a 43% decrease over As University of California at Santa Barbara share for EUR and USD is higher (respectively the same period7. Professor Benjamin Cohen observed, part of 35.50% and 42.36%). On the contrary, the the direction for usage of the US dollar and RMB share is smaller when looking at cross- There has also been a marked decline in the RMB comes down to currency statecraft10. border only. the number of RMB deposits in key offshore For nearly a century, Cohen noted, the US centres such as Hong Kong, and Taiwan8. dollar has reigned supreme as international Reserve Bank of Australia (RBA) Governor These drops result, at least in part, from the money. Now, however, China is the rising Philip Lowe also noted in April 2017 that after emergence of new opportunities for direct power and is making every effort to erode peaking at almost 30% of global trade volumes investment into mainland China. the dollar’s dominance. The United States, in mid-2015, the share of China’s total trade the incumbent, must in turn decide what settled in RMB has declined to about 15%6. Despite these recent factors impacting its if anything it is prepared to do to counter The decline in the share of RMB payments growth, observers still expect to see usage of the RMB’s rise. Success in a conflict of for imports has contributed to a decline in the the RMB to increase over time. statecraft can be measured in two ways, stock of RMB deposits in the offshore centres, Cohen said – “in terms of policy measures Lowe noted, given that supply of RMB to these One reason is the impact of the Chinese effectively implemented on the supply side of centres is largely through RMB trade payments. Belt & Road Initiative9, which will likely lead the market or in terms of substantive impacts to significant levels of development in more on behaviour on the demand side”. China’s A multitude of factors have led to the than 60 countries and to increased usage record of accomplishment to date has been drop in the usage of the RMB. One is the of the RMB for cross-border trade, cash impressive by the first metric, but not by the Chinese government’s shift away from management, financing and investments. second, Cohen said. Yet over the long haul internationalisation, as it uses regulatory the RMB may still become a serious rival. measures to stem capital outflows. Following “Ironically, if that outcome comes to pass, it extensive outflows for property and acquisition will be due less to the effectiveness of Beijing’s

September 2015 September 2017 statecraft than to the failure of Washington’s.”

1 USD 46.62% 1 USD 42.36% 2 EUR 29.46% 2 EUR 35.50% 3 GBP 4.90% 3 GBP 4.13% 4 JPY 3.76% 4 JPY 3.99% 5 CHF 2.87% 5 CHF 2.73% 6 CAD 2.47% 6 CAD 2.44% 7 CNY 1.80% 7 AUD 1.45% 8 AUD 1.60% 8 CNY 1.15% 9 HKD 0.92% 9 HKD 0.88% 10 SEK 0.71% 10 SEK 0.67% 11 NZD 0.55% 11 NOK 0.59% 12 MXN 0.54% 12 NZD 0.45% 13 NOK 0.54% 13 TRY 0.45% 14 DKK 0.46% 14 MXN 0.44% 15 SGD 0.45% 15 DKK 0.38% 16 TRY 0.39% 16 PLN 0.38% 17 PLN 0.38% 17 SGD 0.36% 18 ZAR 0.30% 18 RUB 0.28% 19 CZK 0.23% 19 ZAR 0.27% 20 HUF 0.20% 20 CZK 0.27%

Currency’s share as an international cross-border payments currency Customer initiated and institutional payments. Messages exchanged on SWIFT. Based on value. MT 103, 202, cross-border only Excluding payments within Eurozone Source: SWIFT Watch

6 RBA - Renminbi Internationalisation – Speech by Philip Lowe, April 2017 9 Belt & Road covered in our previous RMB Tracker – Special edition July 2017 7 RMB tracker - Special edition July 2017 10 Renminbi Internationalization: A Conflict of Statecrafts - Research Paper – By Benjamin J. Cohen - International Economics Department - March 2017 8 Deposits data available in the Hong Kong Monetary Authority (HKMA) & Central Bank of the Republic of China -Taiwan (CBC) websites 6 RMB Tracker October 2017

No significant correlation between economic size of a country and its currency usage

What is clear from current trends is that there an activity share of 39.79%. And although trade growth, institutional capabilities and is no significant correlation between the size China accounts for 15% of global GDP, the support). We might expect, though, that of a country’s economy and the usage of RMB is used for less than 2% of international the gap between USD and RMB is not its currency for international payments and payments. sustainable in the long term as the Chinese clearing. economy continues to grow and develop We know of course that internationalisation broader capabilities for internationalisation of Whereas the U.S. accounts for about 25% of currencies is driven by broader factors the RMB. of global GDP, for instance, the US dollar has beyond economic size (e.g. policy support,

Global GDP in Trillions USD GDP Currency Currency share share September 2017 - 5 10 15 20

United States 25% USD 39.79%

China 15% EUR 33.05%

Japan 7%

Germany 5% JPY 3.10%

France 3% CAD 1.86%

Canada 2% CNY 1.85%

The world’s biggest economies GDP in current trillions USD and share of global total, 2016 Word Bank data

Source : https://data.worldbank.org/data-catalog/GDP-ranking-table Currency share: SWIFT Watch

9 Belt & Road covered in our previous RMB Tracker – Special edition July 2017 10 Renminbi Internationalization: A Conflict of Statecrafts - Research Paper – By Benjamin J. Cohen - International Economics Department - March 2017

7 RMB usage in the Americas RMB Tracker October 2017 is low

Slower offshore RMB adoption compared to the rest of the world

76.23% Hong Kong 69.77% 5.19% United Kingdom 6.50% 4.41% Singapore 4.30% 3.35% The RMB usage for the Americas is low Republic of Korea 2.96% compared to other regions. Only the United 2.46% United States 3.17% States and Canada are in the top 15 offshore RMB economies with respectively 2.46% and 1.95% Taiwan 2.42% 0.27% share. Hong Kong has the lead share at 76.23% and has grown this share in the 1.57% France 1.29% past 12 months from 69.77%. 0.86% Australia 1.15% Germany 0.65% 0.62% Top 15 offshore RMB economies, Luxembourg 0.29% by weight 0.40% Customer initiated and institutional 0.29% payments. Inbound + outbound traffic. Macau 0.60% Based on value. Excluding China. 0.27% Canada 0.35% Source: SWIFT Watch 0.13% United Arab Emirates 0.17% 0.09% Aug 2017 Russia 0.08% Aug 2016 0.09% Switzerland 0.08%

The Chinese government announced the A key reason for low usage of the New York counterparts that along with having a Chinese opening of offshore clearing centres in Canada centre, according to Global RMB quarterly clearing bank, at least one US-headquartered in 2014 and in the United States in 2016. So review, Q1 201711, is that the upcoming bank would be designated as a RMB clearing far, however, usage of the Canadian clearing launch of the second phase of China’s cross- bank12. That commitment is, however, centre is rather low. And despite the centre in border interbank payment system (CIPS) is complicating People’s Bank of China (PBoC) the U.S. being announced, usage of the RMB delaying the launch of clearing activities. efforts to revamp global clearing for RMB for payments in the New York clearing hub has transactions. Based on a special report from yet to take off. Both centres have experienced Moreover, the launch of the US RMB hub Global Capital, PBoC is apparently revising decline in last 12 months. last year introduced a new variable, as the agreements with clearing banks globally, Chinese authorities agreed with their US since it believes it may need to develop more detailed provisions for non-Chinese clearing banks in other markets as well and developing the procedures is taking time13.

11-13 Global Capital – Global RMB Quarterly Review, Q1 2017

8 RMB Tracker Official RMB Clearing Banks appointed by PBoC October 2017 Geographical location and timeline

CCB London June 2014

BOC ICBC ICBC Paris Bangkok Toronto September 2014 January 2015 November 2014 BOC BOC Frankfurt Macau June 2014 BOC September 2004 New York ICBC September 2016 Moscow BOC March 2017 Hong Kong 2003 ICBC Doha BOCOM November 2014 Seoul July 2014 BOC ABC Budapest Dubai CCB June 2015 December 2016 Santiago CCB May 2015 Zurich November 2015 ICBC ICBC BOC Buenos Aires Luxembourg Taipei September 2015 September 2014 December 2012 BOC ICBC Sydney Singapore February 2015 February 2013 BOC Lusaka September 2015 BOC BOC Kuala Lumpur January 2015 Johannesburg July 2015

Since the appointment of the Bank of China New York, as the official RMB clearing bank, the RMB growth for cross-border payments is approximately 17%.

Sep 2016: 6000 BOC New York 100 Appointment of RMB Clearing Bank 90 5000 CNY 80 i n 70 se nt

4000 Growth+10% 60 i on s 3000 50 sac t n

40 a r 2000 t 30 20 1000

Growth +17% 10 hou sa nd T 0 0 Thousand transactions sent in all currencies

201408201409201410201411201412201501201502201503201504201505201506201507201508201509201510201511201512201601201602201603201604201605201606201607201608201609201610201611201612201701201702201703201704201705201706201707201708 Growth is based on Aug 2017 vs RMB Clearing Trafﬁc between U.S. and CN/HK, all currencies Trafﬁc between U.S. and CN/HK, CNY Bank appointment

Monthly evolution of traffic between U.S. and China/HK The first curve shows the volume of payments in all currencies between U.S. Live, delivered, MT 103s and 202, U.S. cross-border excl. Central Banks since Aug 2014 and China/Hong Kong (around 4 millions transactions per month). The second curve shows the volume of payments in RMB only between U.S. Source: SWIFT Watch and China/Hong Kong (around 25,000 transactions per month). 9 RMB Tracker October 2017

+20% +23%

107 90 89 73 0% +16% 13 13

Share of 1,316 RMB users 39% 49% 38% 49% 48% 48%

North America United States Canada +22% 1,134

678

555 +5% 379 399

+20% +3% +24% 107 29 30 89 102 82

Share of 30% 40% 39% 47% 39% 49% 33% 36% 35% 40% 36% 44% August 2015 August 2017 RMB users

Africa-Middle East Asia Paciﬁc North Central-Latin Europe World America America

Number of financial institutions using RMB for payments with Hong Kong and China Live, delivered, MT 103s and 202, in RMB sent to HK/China Aug 2017 vs Aug 2015 Source: SWIFT Watch The United States, Canada and Mexico Compared to August 2015, the number and U.S. are mainly sending the payments to combined – have 107 financial institutions of financial institutions using RMB in North final beneficiaries located in China (accounting using RMB for payments with China/Hong America for payments to China/Hong Kong for 67%) or Hong Kong (23%). Only 10% of Kong, out of which 90 are from the U.S., 13 has increased by 20%, above the global the payments in RMB are sent outside Hong are from Canada and 4 from Mexico. These increase of 16% globally. However, the Kong and China (United Kingdom, Belgium, 107 financial institutions represent 49% of the number of financial institutions using RMB for Taiwan mainly). SWIFT connected financial institutions of the payments to China/Hong Kong is much lower 3 countries, which is the highest reach rate than Europe or Asia Pacific. In value, the ratios differ; Hong Kong takes the compared to other regions. lead with 46%, then 19% of RMB payments As shown in the charts below, when payments sent by Canada and the U.S. have their final are in RMB, financial institutions in Canada beneficiary in the U.K., only 8% with China, By volume 7% with Belgium and 6% with Singapore. By value Taiwan, 1% Others, 3% Belgium, 2% Singapore, 6% United Kingdom, 4%

Belgium, 7%

Hong Kong, China, 8% 23% Hong Kong, United Kingdom, 46% China, 67% 19%

Top beneficiaries of payments sent from U.S./Canada in RMB Live and delivered, MT 103s, cross-border, YTD Aug 2017, Excl. Central Banks Source: SWIFT Watch 10 RMB Tracker October 2017

Enablers needed to support RMB usage Other market developments Good foundation for growth, but adoption in the U.S. Bloomberg said it expects that the RMB’s bid still nascent in Canada to challenge the US dollar as a global currency Once the U.S. clearing hub in New York could also get a boost as Asian exchange Even though a RMB clearing hub was set is up and running, a number of steps may rates stabilise and synchronise, at the same up in Toronto in 2014 and the Trudeau significantly drive RMB adoption. time that U.S. politics are now buffeting the US government has publicly stated its intent to dollar15. engage with China more comprehensively, Appointment of second US clearing bank Canadian corporates have been slow to start One of the most important catalysts would China can also take small steps to have more using RMB. Export Development Canada be approving a U.S. bank as a RMB clearing transactions completed in RMB. It is already (EDC) noted that although the hub was bank in New York, which could drive increased preparing to launch a crude oil futures contract designed to facilitate RMB usage in Canada, usage of the RMB for payments as that bank denominated in RMB and convertible into making transactions between Canadian and would likely want to strongly promote RMB gold16, a step that the Nikkei Asian review Chinese firms more efficient, a HSBC study usage to increase its own stature. expects this could create the most important showed that only 7% of Canadian businesses Asian oil benchmark, allowing oil exporters to used RMB in 201616. While that level was Capital account opening bypass US dollar-denominated benchmarks admittedly a significant increase from the Another important factor driving volume, by trading in RMB. three per cent that used it in 2015, it was well globally as well as in the United States, below the global average of 24%. By contrast, would be the development of an open While significant increases in usage of the for Canada and China/Hong Kong corridor, capital account, which is necessary for RMB for payments by all corporates may be the Canadian dollar is used for about 70% an international currency. As RBA’s Lowe some time away, experts anticipate payments of cross-border payments in value, followed explained, an open capital account allows to trend in that direction over time and steps by the RMB with 15% and the US dollar citizens of a country to buy and sell assets such as these could accelerate the shift. accounts for only 1% ranked fifth, according overseas, and it allows non-residents to buy to SWIFT data. and sell domestic assets in that country14. While China has been gradually moving in Future growth remains promising though. this direction and opening up, Lowe said that Canada is rich in natural resources, which tighter short-term controls that the country dominate its exports to China now and which USD, 1% Others, 1% put in place more recently may have increased JPY, 4% are still likely continue to be sought after by financial stability in China and reduced the China. Even though RMB usage for payments risk of a disorderly currency adjustment at the is low, ICBC observed, usage has grown by expense of reducing international usage of the HKD, 67% in Toronto since 2014 and future growth RMB. A relaxation of those controls could lead 8% prospects are promising. In comparison, to greater usage of the RMB in all markets. the RMB growth for the U.S. is moderate with 17% growth since RMB clearing centre appointment. CNY, 15%

CAD, 70% Top currencies of payments sent and received by value between Canada and China/HK Live and delivered, MT 103s and 202, cross-border, YTD Aug 2017, Excl. Central Banks

Source: SWIFT Watch

14 RBA - Remarks to the RMB Global Cities Dialogue Dinner –- by Philip Lowe, April 2017

15 Bloomberg Reports - The New RMB Reality - June 2017

16 HSBC – Global Survey: Canadian companies lagging behind global use of Chinese RMB

11 RMB Tracker October 2017

250 Nov 2014: 20 ICBC Toronto 19 18 RMB Clearing centre opens Growth +26% 17 CNY 200 16 i n 15 14 se nt 13 150 12 11 10 i on s 9 100 8 sac t n

7 a r

6 t 5 50 Growth +67% 4 3 2

1 hou sa nd

0 0 T Thousand transactions sent in all currencies 201408201409201410201411201412201501201502201503201504201505201506201507201508201509201510201511201512201601201602201603201604201605201606201607201608201609201610201611201612201701201702201703201704201705201706201707201708 Trafﬁc between Canada and CN/HK, all currencies Trafﬁc between Canada and CN/HK, CNY

The ﬁrst curve shows the volume of payments in all currencies between Canada and China/Hong Kong (around 1.5 millions transactions per month). Growth is based on Aug 2017 vs The second curve shows the volume of payments in RMB only between Canada and China/Hong Kong RMB Clearing centre appointment (around 4,000 transactions per month).

Monthly evolution of traffic between Canada and China/HK Live, delivered, MT 103s and 202, cross-border, excl. Central Banks since Aug 2014

High dependency on Hong connecting different countries of the world with The government has said it will continue to China. Concretely, it means that payments work with the mainland authorities to explore Kong for RMB clearing are transited via Hong Kong. In fact, we know ways to open up more channels for two-way from previous tracker edition that, 49.4%17 of cross-border RMB fund flows. While other RMB clearing hubs have grown, RMB payments in volume are transiting via Hong Kong remains the dominant RMB Hong Kong. For the RMB payments initiated Initiatives such as Bond Connect, the third clearing hub globally. As shown in the in the U.S. and Canada with a final beneficiary securities trading link between Hong Kong chart presenting the top 15 RMB offshore in China/Hong Kong, we see that 46.6% are and mainland China, only strengthens Hong economies, Hong Kong leads the RMB cleared in Hong Kong, 33.6% are cleared in Kong’s role as a finance centre and as a offshore centres with an activity share of China. Interestingly, 18.7% are intermediated centre for RMB clearing and payments. 76.23%, increasing compared to last year; by United Kingdom. When analysing the RMB other centres such as the United Kingdom by value, 93.7% of RMB payments are cleared While Hong Kong seems likely to remain the and Singapore, demonstrate a decline. Hong by Hong Kong. dominant RMB clearing hub globally, other Kong is also acting as a RMB gateway to centres can still increase their own piece of China by being the intermediary of payments the business by taking steps to make RMB clearing more attractive.

By volume By value

Hong Kong 46.6% Hong Kong 93.7%

China 33.6% China 3.7%

United Kingdom 18.7% United Kingdom 2.2%

Others 1.0% Others 0.3%

Top intermediaries of RMB payments from U.S./Canada ending in China/HK Live and delivered, MT 103s, cross-border, YTD Aug 2017, Excl. Central Banks

17 RMB tracker – Special edition July 2017

12 RMB Tracker October 2017

In contrast to this time last Twelve years on from the year, China has taken a more 2005 reforms, renminbi Renminbi expansion subdued approach towards internationalisation has reached the internationalisation of the an inflection point. Further renminbi. Beijing is instead detachment from the dollar is is inevitable: focusing on stabilising the inevitable, and the currency is economy ahead of a major likely to become a more proactive leadership reshuffle at the 19th force in international markets. Belt and Road Communist Party congress on 18 By leading the cross-border Belt October. and Road infrastructure initiative, China will expand the use of the central to currency’s At the congress, China is set to renminbi in connected countries name its first new central bank thanks to improved international governor in 15 years. The choice payment and settlement continued rise will be an expression of President facilities. Although Beijing will Xi Jinping’s ‘grand strategy’ maintain a low profile – Xi has for the world’s second-largest already sought to allay concerns From Adam Cotter economy. among China’s neighbours of Head of Asia and Chief Representative, its ambitions – there is already OMFIF Singapore Under the leadership of encouraging renminbi growth in Governor Zhou Xiaochuan, countries along the ‘maritime silk the People’s Bank of China has road’. overseen the increased adoption OMFIF, the Official Monetary and of the renminbi on the world Upon joining the World Trade Financial Institutions Forum, is an stage. One of Zhou’s major Organisation in 2001, China independent think tank for central accomplishments was the gradual pledged to relax incrementally its banking, economic policy and public loosening of the renminbi’s dollar currency regime. There are calls investment and constitutes a non- peg in 2005, and allowing market for the PBoC to let the market lobbying network for best practice forces to play a greater role in play a greater role, but Beijing in worldwide public-private sector exchanges. setting the currency’s value. is likely to retain considerable Moreover, while the PBoC does control of its economy. The OMFIF presents its views on not possess total autonomy with leadership is in no rush to China’s Strategy about RMB regard to deciding policy, it did relinquish authority to market Internationalisation, as follows. gain some independence from forces. the governing state council. This may, however, be at risk if the We remain in a dollarised world; council decides to exercise more but amid the restructuring of control behind the scenes, in an the world economy, the long- effort to steady China’s economic term trend will be one of greater transition. ‘renminbi-isation’ of global markets.

13 RMB Tracker Conclusion October 2017

As of today, the US dollar remains an uncontested lead currency globally. Taken into account the importance of China in the global economy (15% of global GDP), we might expect the RMB to have higher share. However, the path of RMB internationalisation has not been smooth and despite the multiplication of RMB offshore centres across the globe, RMB usage remains low compared to other currencies like EUR and GBP. The Belt & Road project will certainly have a positive impact on RMB usage, but years are necessary to fast track RMB into one of the most important international currencies, similar to the US dollar and euro. Moreover, in the near future, the intermediary role of Hong Kong for RMB payments may generate some envy from China and other countries willing to play this role.

14 About SWIFT and RMB internationalisation Support your RMB strategy Measure your performance with fact-based insights with SWIFT FX Performance Insights The growing importance of the RMB currency and its role in financial markets The FX market is one of the largest is evident. Because of this, financial in the world but as a decentralized institutions and corporates have already market it is very difficult to compile started to build their RMB strategy or accurate amalgamated metrics. There Since 2010, SWIFT has actively supported are planning to do so in the near future isn’t one “exchange” where every trade its customers and the financial industry but need more fact-based information is recorded. At Sibos 2016, SWIFT regarding RMB internationalisation through to identify where their organisation announced a new FX service that various publications and reports. Through its stands. allows its customers to continuously Business Intelligence Solutions team, SWIFT measure their FX business performance publishes key adoption statistics in the RMB To address these issues, SWIFT and make more informed strategic Tracker, insights on the implications of RMB Business Intelligence provides a free decisions, based on metrics derived internationalisation, perspectives on RMB Monthly RMB Tracker. Furthermore, from actual transactions rather than clearing and offshore clearing guidelines, in order to obtain more granular survey-based information as well as engaging with offshore clearing market information and a competitive centres and the Chinese financial community framework, SWIFT has developed a to support the further internationalisation of compelling offering: –– SWIFT FX Performance Insights the RMB. enables you to continuously –– At the core of SWIFT Business measure your FX business SWIFT fully supports global RMB transactions, Intelligence sits the Watch performance against those of and its messaging services enable Chinese platform, a portfolio of online your peers, and so make more character transportation via Chinese reporting and analytical tools that informed strategic decisions, Commercial Code (CCC) in FIN or via Chinese give you direct and easy access to based on metrics derived from characters in MX (ISO 20022 messages). business intelligence about your actual transactions rather than In addition, SWIFT collaborates with the financial institution and the global survey-based information. community to publish the Offshore and financial industry. For example, –– The service provides a view on Cross-Border RMB Best Practice Guidelines, Watch Analytics provide you with the institution’s performance which facilitate standardised RMB back office direct access to business data of against their peers across multiple operations. RMB transactions allowing you to perform a more dynamic search permutations of segments, currencies and flows. SWIFT Please visit www.swift.com for more and analysis. has a unique data set and the information about RMB Internationalisation or –– In order to obtain more granular aggregated data and insights join our new ‘Business Intelligence Transaction market information and a provide valuable additional insight Banking’ LinkedIn group. competitive framework, this can to help our clients constantly be acquired through its extended improve their client proposition. RMB Market Insights analysis The values provided are the total report. SWIFT’s RMB Market number of transactions, and the Insights report responds to the total value in USD equivalent for needs of SWIFT customers (both that month. The rankings are Watch product users and non- provided for each month/quarter, users). With this, you can benefit the previous month/quarter, and from fact-based quarterly market for the same month/quarter of the analysis using unique data only preceding year. available from SWIFT Business Intelligence. –– The service deliverables are a set of monthly reports provided –– Similarly, the customised RMB in a PDF-based layout. Individual analysis leverages SWIFT’s details on each of the peers, unique data and provides crucial anonymised except for that of the competitive and strategic insights subscriber, are shown in order of to optimise your business and ranking for that month. support your decision-making.

For further information about SWIFT’s For further information about SWIFT FX Business Intelligence RMB Consulting Performance Insights, please visit Services and the full Business swift.com or e-mail [email protected] Intelligence portfolio, please visit swift.com or e-mail [email protected]

15 About SWIFT Disclaimer

SWIFT is a global member-owned This report is provided for information cooperative and the world’s leading only. If the customer or any third party provider of secure financial messaging decides to take any course of action services. or omission based on this report and/ or any conclusion contained therein, We provide our community with a they shall do so at their own risk and platform for messaging and standards SWIFT shall not be liable for any loss for communicating, and we offer or damage, arising from their acts or products and services to facilitate omissions based on this report and/ access and integration, identification, or any recommendations contained analysis and financial crime compliance. therein.

Our messaging platform, products and services connect more than 11,000 banking and securities organisations, market infrastructures and corporate customers in more than 200 countries and territories, enabling them to communicate securely and exchange standardised financial messages in a reliable way.

As their trusted provider, we facilitate global and local financial flows, support trade and commerce all around the world; we relentlessly pursue operational excellence and continually seek ways to lower costs, reduce risks and eliminate operational inefficiencies.

Headquartered in Belgium, SWIFT’s international governance and oversight reinforces the neutral, global character of its cooperative structure. SWIFT’s global office network ensures an active presence in all the major financial centres.

For more information, visit www.swift.com.