Singapore to widen its RMB liquidity pool

Last week, the Monetary Authority of Singapore allowed local banks to settle yuan trades at onshore exchange rates through the ICBC yuan clearing facilities in Singapore. Previously, trade settlement at the onshore rate was available only at branches of the Bank of China in Hong Kong or Taipei or their agent banks.

An executive at the Singapore branch of a State-owned Chinese bank said local banks are gradually moving their RMB clearing business back to Singapore from Hong Kong.

"More policy guidance is needed to encourage wider acceptance of the currency in Singapore. For instance, by allowing Chinese enterprises to use RMB assets as collateral when they make a tender," he said.

Beng Hong Lee, head of China FICC trading and structuring and product management for offshore RMB at Deutsche Bank, said: "Singapore is becoming an important RMB offshore market. You may see more direct trading of RMB assets soon."

According to data released by the Society for Worldwide Interbank Financial Telecommunication, Singapore is the largest "corridor" for use of RMB letters of credit after Hong Kong. In terms of RMB payment value, it is consistently among the top two offshore centers outside Hong Kong.

A letter of credit is a document issued by a financial institution, or a similar party, assuring payment to a seller of goods and/or services provided certain documents have been presented to the bank.

Menon said, "As use of the RMB expands over time in the region and beyond, there will be room for more than one offshore RMB center. Each center will have its own niche and strength."

He said Singapore's strength as an offshore RMB hub is its status as a regional trading hub and an international financial center.

In February, it joined Hong Kong, Taiwan and Macao in having a yuan clearing bank. One month later, it doubled the size of its currency-swap arrangement with China to 300 billion yuan.

In May, the Monetary Authority of Singapore opened its first representative office in Asia in Beijing — the third overseas after London and New York.

Within the first month of starting RMB clearing services in Singapore, HSBC, Standard Chartered Bank, DBS Bank and United Overseas Bank issued 2.5 billion yuan in offshore RMB bonds, or "Lion City Bonds".

Yuan clearing business in Singapore in the first month exceeded 60 billion yuan since ICBC began to offer the service on May 27.

"As regional corporations engage in RMB invoicing and fundraising activities, we expect to see stronger growth in RMB-denominated transactions, bond issuance and equity listings," Menon said.

"Offshore demand for RMB in Singapore is driven by cross-border trading and portfolio diversification needs rather than expectations of RMB appreciation.

"Ultimately, a stable and thriving Chinese economy is the best foundation on which to further the use of the RMB in this region and globally."

Chen Jia contributed to this story.