On 18 November 2014, the Chinese government announced that the Bank of China would be the clearing bank for the Chinese currency, Renminbi (RMB), in Sydney. Having an RMB clearing bank in Sydney presents a tremendous opportunity for Australian businesses, whether they are involved in financial services or not. We set out what it means by answering a few simple questions.
Q: Was an RMB clearing bank required to make RMB payments in Australia?
A: No. Payments in RMB can already be made in Australia, either though the RMB denominated accounts held with banks, or through Australia's RMB settlement system (see below). However, a local RMB clearing bank makes the use of RMB for payments easier, particularly for larger amounts.
Q: So, what does the official RMB clearing bank add?
A: Lots. On a financial level, the RMB clearing bank should provide:
- a more direct link to the liquidity in RMB which is able to be provided by China's central bank, the People's Bank of China (PBC). This should add further comfort that RMB will be available when it is needed.
- for payments being made through to China, it should provide access to China's Real-time Gross Settlement System (CNAPS). This should add further clarity as to when payments to China reach their recipients.
- potentially, if similar arrangements to those in Hong Kong are to become available, access to fiduciary accounts structures maintained by the BoC with the PBC on behalf of its clients. This should help with the management of risk profiles for large amounts, by moving between commercial bank and central bank money.
Further, on a global level, the presence of an RMB clearing bank is international recognition of the importance of Sydney as an Asian financial centre through an official link to the Chinese currency, its financial system and the participants in its financial marketplace.
Q: What does this mean for Australia's RMB settlement service?
A: It is very positive. Bank of China is the RMB settlement bank in Australia's RMB Settlement Service, which was established earlier this year using ASX's Austraclear settlement infrastructure. This allows participants to make payments to each other through RMB denominated cash records in Austraclear, which are then reflected in the participant's accounts with the Bank of China. The appointment of the Bank of China as RMB clearing bank means that this service can make a connection to China's CNAPS system (see above) so that clear payments through to Chinese recipients should become possible.
Q: What about the swap agreement between the RBA and the PBC?
A: This is separate, but still important. The bilateral local currency swap agreement between the RBA and the PBC has been in place since 2012 and allows the RBA and the PBC to exchange Australian dollars and RMB for agreed purposes. The intention of this swap agreement is to provide confidence that RMB liquidity can be made available to the Australian market through a 'backstop' channel in the event of a disruption in the RMB market. However, it is not intended to be a source of funding at times where the market is functioning normally nor does it relate directly to the appointment of the RMB clearing bank.
Q: What does this mean for RMB internationalisation in Australia?
A: It is a significant milestone. It makes it easier for Australians to use RMB for payments and gives them more comfort when they do so. When taken together with Australia's RMB settlement service, there is a complete method for the use of RMB in Australia as a transaction and investment currency. Now, it is up to the Australian marketplace to identify and seize the opportunities to pay, receive, lend, borrow and invest in RMB in Australia. Other marketplaces have done so, and more are sure to do so in the future.
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