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Singapore to start overnight RMB liquidity

Singapore is to introduce an overnight renminbi liquidity facility to meet the short-term financing needs of financial institutions trading in the Chinese currency.

The initiative, which will be offered from 1 July, will help to further promote the international use of RMB and facilitate the growth of the RMB offshore market in the country, the Monetary Authority of Singapore said on Friday.

This liquidity facility will provide up to RMB 5bn ($800m, £470m) worth of overnight funds on any given day and will be in conjunction with the regulator’s present RMB facility that allows banks to borrow RMB funds on a term basis for the purpose of trade, direct investment and market stability.

The city regulator said with the rapid growth in Singapore’s RMB market, the facility will “further bolster market confidence by giving financial institutions the assurance that their short-term RMB funding needs will be met”.

Jacqueline Loh, MAS deputy managing director, said: “As the volume of RMB activities grows in Singapore, the overnight RMB liquidity facility will help alleviate end-of-day funding strains of financial institutions.

“This will provide a conducive environment for the continued expansion of RMB activities in Singapore.”
More details of the overnight RMB liquidity facility will be made available on MAS’ website on 1 July.

Suzhou Industrial Park Scheme

The MAS announcement of the overnight liquidity facility coincided with a directive issued by the People’s Bank of China that allowed eligible corporates and individuals in the Suzhou Industrial Park (SIP) to conduct cross-border yuan transactions with Singapore.

This cross-border RMB initiative is a means to strengthen China-Singapore financial cooperation and allows for a range of cross-border transactions.

Under this scheme, banks in Singapore can conduct cross-border RMB lending to corporates in the industrial park while companies located in the industrial park can also issue RMB bonds in Singapore.

Also, equity investment funds in the industrial park can conduct direct investment in corporates in Singapore. Individuals in the industrial park can also carry out RMB remittance between China and Singapore for the settlement of current account transactions.

Speaking on this specifically, Loh said: “The introduction of cross-border RMB channels between Singapore and SIP will facilitate greater financing for companies operating in the SIP, encourage direct investment in corporates in Singapore and broaden the range of RMB activities that can be conducted out of Singapore.”

The Singapore regulator said it also “looks forward to similar arrangements” being made available “in the near future” which can allow cross-border RMB transactions between Singapore and Tianjin Eco-City.

Offshore Developments

In late April, Singapore overtook London to become the second largest offshore clearing centre for transactions involving the RMB, which is being used increasingly for trade and investments as China liberalises the use of its currency.

According to Society for Worldwide Interbank Financial Telecommunication (SWIFT) data, the value of Singapore’s renminbi payments increased by 375% between March 2014 and March 2013, making Singapore number one in terms of renminbi payments value, excluding China and Hong Kong.

China has been bringing in measures to open up its capital market and gradually liberalise its currency. These steps including taking the pilot Renminbi Qualified Foreign Institutional Investor (RQFII) programme beyond Hong Kong to markets such as London, Singapore, and Taiwan.

UK-based Ashmore Group became the first fund manager outside of Hong Kong to receive such a licence.

In order to tap into the demand for RMB and related products, Hong Kong-based Haitong Securities set up its first company in Singapore.

BlackRock also recently received a RQFII license for its North Asia subsidiary, while Nikko Asset Management was the latest to join the list of companies being granted such licence by the Chinese capital market regulator including Singapore government-owned Fullerton.

Fund houses are also trying to tap into the demand for RMB with JP Morgan Asset Management recently announcing a new RMB share class to its multi-income fund and equity fund while Hong Kong-based HFT Investment Management announced the launch of a RMB money market fund.

Part of the Mark Allen Group.