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China’s global ambition and new FX indices

Refinitiv
Refinitiv
Editorial Team

Turning the renminbi (RMB) into a truly global currency is at the forefront of China’s ambitions. As a sign of its progress, the RMB is now being benchmarked against China’s most important trade partner currencies.

China’s story of unprecedented growth has evolved in the past year into the creation of a new normal, where the need for rebalancing demands that a more sustainable level of growth is embraced.

An economic slowdown is indeed a reality, but the strides that China has made to develop its economy over the past two decades — and the recent milestones it has reached — should not be forgotten amid the current volatility.

In particular, the world’s second largest economy is showing no signs of looking back in its quest to drive the internationalization of the renminbi.

And as the recent creation of indices measuring RMB’s performance against a basket of global currencies demonstrates, the world is taking notice.

Chinese banknotes are seen at a vendor's cash box at a market in Beijing February 14, 2014. China's consumer inflation remained at a seven-month low in January while factory gate prices fell for a 23rd consecutive month, broadly in line with market expectations and with other recent data showing economic weakness, and indicating no change in the central bank's policy stance. REUTERS/Kim Kyung-Hoon (CHINA - Tags: BUSINESS) - RTX18S8O
REUTERS/Kim Kyung

Rise of a global currency

Over the past few years, China has both loosened its capital controls to facilitate foreign investor participation in onshore Yuan market and promoted offshore Yuan centers to encourage the RMB’s international use.

The country’s ambition was displayed in June 2016 when it announced it will give the United States a 250 billion Yuan (US$38 billion) investment quota for the first time to buy Chinese stocks, bonds and other assets.

China has given such quota allocations to several countries, including the UK, France and Singapore, but this would be the biggest given to a single jurisdiction after Hong Kong.

The move, not only representing a means of deepening financial ties and inter-dependence between the world’s two largest economies, will also give U.S investors greater access to China’s domestic markets.

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Historical performance of new index: HKEX RXY Global CNH

International recognition

In November 2015, the IMF announced it will admit the Yuan into its SDR currency basket.

A clear acknowledgment of the progress made by China and its longer-term goal to be a bigger global player in the global financial architecture, the importance of the IMF’s inclusion of the Chinese currency should not be understated.

Markets may have to wait many years until another currency is added to the SDR.

The other four currencies have been in place for decades and it is unlikely that India and Brazil will be big enough to meet the necessary criteria for some time.

More is yet to come. As China hosts the upcoming G20 Summit in September 2016 , the world will be watching its influence over the agenda and whether it will showcase leadership on the infrastructure front via its AIIB and One Belt One Road initiatives.

Our China story began back in 1859 when Paul Julius Reuter started his “Special India and China Service” providing the first reliable conduit for news between the two biggest Asian nations and the UK.

Today, China’s markets continue to internationalize and China remains core to the growth ambitions of most global organizations.

From Chinese corporations wanting to go global, to international investors accessing Chinese stocks via market access programs like Shanghai-Hong Kong Stock Connect, we provide the needed, reliable and trusted market insights, news, analytics, liquidity and connectivity.

New RMB indices

In May, our company and the Hong Kong Exchange (HKEX) announced the signing of an agreement for the creation of a new series of RMB indices, providing the world with independent, transparent and timely benchmarks of RMB’s performance against its most important trading partner currencies.

The suite of indices, which measures the performance of onshore (CNY) and offshore (CNH) renminbi against a bilateral trade weighted basket of 13 or 14 currencies, was launched on 23 June 2016.

The indices allow market participants to view intraday RMB currency movements according to a transparent, rules based methodology which will ensure the indices can be tracked by investment and trading products such as Futures, Options, ETFs and other structured products.

We offer a leading pool of interbank primary market and dealer-to-client liquidity for CNH transactions.

And we also operate some of the world’s most important financial benchmarks such as WM/Reuters and HKMA rates, ensuring they adhere to IOSCO principles.

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WEIGHT BY CURRENCY: VALID UNTIL 30 SEPT 2016

The launch of these indices marks another step forward in our journey to promote collaboration in the financial services industry.

We have over 30 years expertise in the Indices business and have calculated many of the most widely-held indices in the world.

Our pure beta indices and smart indices address many investor objectives across asset classes, themes, regions and sectors.

We offer comprehensive institutional-quality solutions and a full service indexing partnership to help you get your ideas to market efficiently. This is backed by our industry leading platform of financial intelligence and trust principles which guarantee integrity.

FX Indices: independent, transparent and timely benchmarks for RMB against China’s most important trade partners’ currencies