Standard Chartered has launched an index to capture the renminbi’s growing internationalisation.
The British bank says that the renminbi is heading towards global reserve currency status, making it worthwhile to monitor the broader use of the currency — hence the introduction of its renminbi globalisation index.
The index tracks four products in Hong Kong, London and Singapore: offshore renminbi deposits, trade settlement and other international payments, dim sum bonds and certificates of deposit, and foreign exchange turnover.
Each product is weighted in inverse proportion to its variance and the index is calculated on a monthly basis.
The index dates back to December 2010, a time when renminbi trade settlement picked up significantly after the currency was first allowed to trade freely on a strict offshore basis during the second half of 2010.
Although the index is designed to track the ups and downs in the currency’s internationalisation, StanChart said that it expects to see more upward movement during the next six months, in a continuation of the existing rising trend.
In less than two years, the index has risen more than seven times and now stands at 735, up form the base value of 100.
StanChart said that businesses are increasingly favouring the currency. A survey that it has conducted, announced at the same time as the index, found that existing offshore renminbi users are more willing to expand their usage, with 48% of respondents saying they may start to use one or more of the offshore renminbi products they are not currently using during the next six months.
Driven by hedging needs, the most common offshore use of renminbi is for foreign exchange transactions, according to almost half of respondents.
A growing number of SMEs in Europe are also choosing to settle trade in renminbi to improve their negotiating position when doing business with partners in China, Deutsche Bank found in a survey in August.
The bank surveyed 102 companies from the UK, Germany and the Netherlands in April and May, and found that 20% of the respondents already invoice their trading partners in renminbi. The remaining 80% indicated that a switch to invoicing in renminbi is in the pipeline.
Even so, the demand for renminbi seems to have cooled in some markets. StanChart said the slowdown is temporary and added that there’s plenty of momentum behind the market growth.
“The offshore renminbi and dim sum bond markets were among the last market to succumb to risk aversion,” the bank said in a report. “While the renminbi deposits in Hong Kong have yet to return to pre-shock levels, the recovery in the RGI has been impressive, driven by a swift rebound in all three of the other index components.”
StanChart expects China’s economic slowdown will bottom out in 2013 and a gradual recovery will bring new impetus to the index. Over time, the renminbi will provide an attractive alternative to the US dollar.