SINGAPORE: According to latest figures from ICBC Singapore, the total amount of yuan cleared in Singapore from end May to end December amounted to 2.6 trillion yuan.
This follows ICBC’s appointment in May 2013 as the sole yuan clearing bank in Singapore.
Besides allowing offshore clearing of the yuan, China has been taking significant steps to make the yuan more accessible outside its borders.
Singapore’s yuan deposits stand at 172 billion yuan (S$35.89 billion) as of October 2013, according to latest data from the Monetary Authority of Singapore.
That is a 70 per cent jump over a period of ten months.
Over roughly the same period, banks like Standard Chartered said it has seen a doubling of its yuan-denominated trade financing business as more companies, especially those with links to China, switch to billing and receiving payments in yuan.
Motasim Iqbal, head of transaction banking for Singapore at Standard Chartered, said: “So besides the commodity clients, we’re also seeing some early movers in the multinational sector and some of the local corporates as well. And clearly these clients have actually benefited competitively, and there are a couple of reasons. One, better foreign exchange management, they can tap into liquidity which is available offshore, and there is also better pricing transparency that is involved.”
Suan Teck Kin, senior economist at UOB, said: “RMB (renminbi) financing offshore is actually cheaper than onshore RMB financing. That means for customers who are interested in investing in these two areas, it will be beneficial or more cost effective for them to raise their financing in Singapore, in this case.”
Over the past year, the Chinese government has been taking steps to increase the use of the yuan globally.
The central bank raised its daily fixing rate to a near record high in 2013, allowing the yuan to appreciate and hit record highs against the US dollar.
In Singapore, some of these steps include an offshore yuan clearing bank in May, a doubling of the currency swap facility between the two countries to 300 billion yuan, and a 50 billion yuan quota for financial institutions in Singapore, under the Renminbi Qualified Foreign Institutional Investor scheme.
The agreement was reached in October, making Singapore only the third offshore centre, after Hong Kong and London, to be allowed to use the yuan to trade in Chinese stocks and bonds.
But analysts said there are still challenges to the greater adoption of the yuan.
For one, commodities are traditionally priced in US dollars.
This makes it hard for Chinese firms, among the biggest buyers and sellers of commodities, to transact in yuan.
But some analysts said this could change with the emergence of the Shanghai Free Trade Zone.
Tommy Xie, economist at OCBC, said: “For any offshore centre, like Hong Kong, Singapore, London, I think it’s a little hard for them to try to price commodities in yuan. But it’s very likely in Shanghai, because we are now seeing the establishment of the Shanghai International Trading Centre, which is inside the zone.
“One of the key initiatives from this Shanghai International Trading Centre is to launch crude oil futures in China. So the futures may be settled in both yuan and the US dollar. And this to me is quite a big move going forward.”
The yuan broke into the ranks of the top ten most traded currencies globally in 2013.
Still, some analysts said if China’s economy and its reforms are not managed carefully, the yuan could fail in its internationalisation bid, like the Japanese yen over a decade ago.
Singapore"s growth as an offshore yuan hub
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