The Operational Impacts of Renminbi Internationalization

June 18, 2013

RMBNews of China’s economic dealings and its rising prominence is fairly common – it is now the second largest economy in the world and trading nation, and as such gets substantial media attention.  However, we rarely hear news about the role of the Renminbi (RMB) in relation to China’s international dealings, even though it plays an important role.

Financial institutions involved in global trade with China experience the influence of the RMB on their businesses.  Many Chinese institutions are developing their RMB payments clearing businesses, as foreign entities need to settle and invest the RMB they earn in China.  For non-Chinese firms, RMB-based businesses are growing at rapid rates and are strategic investments in the future of Asia markets. 

Recently, the China Securities Regulatory Commission (CSRC) expanded foreign investor initiatives, namely the RMB Qualified Foreign Institutional Investor (RQFII) program. This includes the government’s further expansion of its qualified foreign institutional investor (QFII) program. To sum this expansion, China’s government facilitates the use of the RMB in international trade settlements, promotes approved institutions to invest in China’s onshore RMB bond markets, encourages RMB-based IPOs in Hong Kong and supports central banks in having the RMB as part of their foreign exchange reserves.

Hong Kong has long been the preferred off-shore platform of Mainland Chinese companies for raising financing, as the local financial community is very familiar with the Mainland market.  More recently, we’re seeing increased interest in the RMB outside of Asia.  For example, the central banks of Nigeria and Tanzania have now incorporated the RMB into their foreign currency reserves, and China has engaged in currency swap agreements with other countries that serve as important commodities providers.

As the RMB is positioned for growth, it is only a matter of time until it finds way into the investment strategies of global asset managers.  In order to be prepared, investment firms need to enhance their RMB processing, accounting, clearing and reporting capabilities to be ready to bring these strategies to the market.

PORTIA is well positioned to help investment firms meet the operational challenges posed by RMB growth.  As a true multi-currency transaction processing system, PORTIA stores an unlimited number of currencies, exchanges rates and interpolated forward rates from any data provider.  All relevant currency bases are tracked for accurate accounting, reporting and analysis.  The flexibility of the system allows clients to quickly add new products to their investment strategies and properly account and manage new investments throughout their operations.

The markets will continue to evolve and new opportunities, such as the growth of the RMB, will continue to present themselves.  Asset management organizations need to have flexible operational systems in place that allow them to be nimble enough to capitalize on changing market conditions.  Are you seeing the impact of the growth of the RMB in your operations?

– Galix Leung – Senior Sales Consultant

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