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Categorized | Currencies

China designates Rmb clearing bank in NY


Posted on September 21, 2016

New Chinese 100-Yuan Banknotes As New Design Goes Into Circulation...The image of former Chinese leader Mao Zedong is displayed on a one-hundred yuan banknote in an arranged photograph at the Bank of China Hong Kong Ltd. headquarters in Hong Kong, China, on Thursday, Nov. 12, 2015. The People's Bank of China's 2015 edition of the 100 renminbi banknote, with new anti-counterfeiting features, starts circulating today. Photographer: Xaume Olleros/Bloomberg©Bloomberg

China’s central bank has designated an official renminbi clearing and settlement bank for New York City, filling in the final major gap in a network of offshore institutions designed to promote greater international use of the Chinese currency.

The People’s Bank of China chose the New York City branch of Bank of China as the official clearing bank, the PBoC said on Tuesday. The designation adds to a roster of Chinese state-owned banks that serve the same function in Hong Kong, London, Singapore, Frankfurt, Paris, Johannesburg and Sydney, among other locations. 

    Bank of China’s New York branch is the largest Chinese branch of a foreign bank in the US with more than $50bn in assets and settlements of international payments equivalent to a quarter of all US-China trade, Bank of China said on its website. 

    Following a meeting with US President Barack Obama on Monday, Chinese Premier Li Keqiang met with leaders of the Working Group for US RMB Trading and Clearing at the Waldorf Astoria hotel in New York on Tuesday — now owned by a Chinese insurance conglomerate.

    “The establishment of a clearing bank in the US will promote the growth of renminbi activity in the US and help accommodate an increase in volumes and demand for renminbi products and services,” said Timothy Geithner, former US Treasury secretary and co-chair of the working group. Michael Bloomberg, former New York City mayor, co-chairs the group, along with Henry Paulson, another former US Treasury secretary.

    Designated renminbi clearing banks facilitate offshore renminbi trading and cross-border payments because they have special access to China’s onshore foreign exchange market, enabling them to provide liquidity to offshore centres. 

    So far, only offshore branches of Chinese banks have received the PBoC’s official clearing bank designation, but Mr Li hinted that could change. 

    “We also welcome those foreign (non-Chinese) banks in New York that meet the eligibility requirements to become clearing banks for Chinese renminbi business,” Mr Li said at a business dinner on Tuesday evening.

    The lack of a renminbi clearing mechanism in the US, a centre of global finance, was a major missing piece of the puzzle for renminbi internationalisation

    – Ming Ming, head of fixed income research at Citic Securities

    The pace of renminbi internationalisation has slowed over the past year as the currency suffered depreciation amid capital outflows from China. Renminbi deposits in Hong Kong, the leading offshore centre, hit a three-year low in July. The redback also dropped below the Canadian dollar to sixth place in a global ranking of currencies used for cross-border payments in the first half of 2016. 

    Market participants say the backsliding highlights the extent to which foreigners’ apparent enthusiasm for holding renminbi in recent years was driven by appreciation expectations, which have since reversed.

    In the long term, however, analysts say the designation of a New York clearing bank is crucial to promoting greater international renminbi usage. 

    “The lack of a renminbi clearing mechanism in the US, a centre of global finance, was a major missing piece of the puzzle for renminbi internationalisation. The designation of Bank of China in New York means the global framework is now basically complete,” said Ming Ming, head of fixed income research at Citic Securities, who previously worked on renminbi internationalisation at the PBoC.

    Twitter; @gabewildau