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Sunday, October 2, 2016, 17:03

BoC authorization in NY crucial for RMB globalization

By Xinhua
BoC authorization in NY crucial for RMB globalization
This undated photo shows a Chinese clerk counts US dollars in exchange for the Chinese Renminbi at a bank in Hefei in central China's Anhui province. (Photo / AP)

NEW YORK – Thanks to the operation of the Chinese Renminbi (RMB) clearing bank in the United States, trading with Chinese companies has been made a lot easier for the Chicago Mercantile Exchange (CME).

One of America's earliest and most honored exchanges, CME's average daily volume with China this August amounted to 70,000 units. Until later September, however, all these trades had to go through a whole process of converting the RMB into other forms of collateral.

"This could add additional time and cost (to) the clearing process," said Suzanne Sprague, managing director of CME clearing.

Things have changed since China's central bank announced on Sept 21 the authorization of the Bank of China New York office as an official RMB clearing and settlement bank for New York City.


"It is a milestone," said Xu Chen, president and CEO of Bank of China USA in an interview with Xinhua the day after the announcement. "Now we have Renminbi overseas service in Asia-Pacific area, in Europe and in the United States, it is finally 24/7 (twenty-four hours in seven days)."

Analysts pointed out the move was long called for, as it has filled a major gap in the network of offshore institutions designed to promote a greater use of RMB in the global market. In the first half of this year, the amount of settlement by the Chinese currency in the US is valued at about 100 trillion yuan (US$14.99 trillion), ranking fifth in the global offshore market.

The designation seems more significant as RMB trades in the US tend to be driven by the market, instead of pushed by the government or monetary institutions as in other countries.

"The need is more real, and urgent," explained Xu, adding that the establishment of a clearing bank benefits not only trades, but also investment in the US.

"We are seeing an increase of Chinese investment in the United States in recent years," said Xu. "In 2015, the volume was US$15.7 billion, while the number has already reached 18.4 billion in the first half of 2016."

In line with the increased use of the RMB as a global currency, the International Monetary Fund on Friday added the RMB to its new Special Drawing Rights (SDR) basket, effective from Oct 1.

The inclusion makes the RMB yuan one of the five reserve currencies fully endorsed by the 189-member organization, joining the US dollar, the euro, the Japanese yen and the British pound.

"More financial products valued in the RMB would be launched," Xu noted, adding that "the RMB would be more widely used in the United States as the US market is more open than others."

However, there are also risks. Market observers warned that the access to freer and more developed US financial market could, at the same time, give rise to challenges to the RMB. The time difference between New York and Beijing could make the impacts harder to be traced.

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