| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy


Finfacts changes from 2015

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Global Cost of Living

Irish Tax - Income/Corporate

 

Feedback

 

Content Management by interactivetools.com.

Asia Economy Last Updated: Mar 12, 2015 - 5:31 AM


Swiss inch towards renminbi hub dream
By Matthew Allen, swissinfo.ch
Jan 21, 2014 - 7:05 AM

Email this article
 Printer friendly page

News that Switzerland’s central bank recently opened talks with its Chinese counterpart to swap currencies has raised Swiss hopes of attaining a renminbi hub status. But Switzerland is playing catch-up with rivals that share the same ambition. As global renminbi (RMB) transactions gather pace, a tantalising vision has emerged of a new international reserve currency competing with the dollar, euro and British pound. Financial centres are jostling to enjoy the prestige and profits of becoming RMB conduits.

In December 2012, the Swiss government officially announced its intention of becoming a renminbi hub, joining the likes of Britain, Canada, Germany and France in trying to woo Beijing.

The signing of a free trade agreement (FTA) with China earlier this year might give Switzerland a boost, according to Felix Sutter, head of PricewaterhouseCoopers’ Asia business group in Switzerland. But knowing how to win a renmini hub mandate from Beijing is hard to predict.

“China has always preferred bilateral negotiations, that are not always completely transparent, to pick RMB partners,” Sutter told swissinfo.ch. “Each country, at a specific time and under specific circumstances, has its own appeal.”

In addition to making sure the FTA runs smoothly, Switzerland might make itself more appealing by granting more visas for Chinese investors, Sutter suggested.

Playing catch-up

There are fears that Switzerland might be left behind by rival countries, particularly Britain, which has leveraged its historical connection with Hong Kong to set up a currency swap arrangement and encouraged a number of Chinese banks to set up shop on British soil.

A central bank swap agreement allows high volumes of renminbi to enter a country, while an offshore branch of a Chinese bank is needed to process RMB transactions. Switzerland, so far, has neither element in place.

“The RMB is not a difficult currency to embrace from a financial point of view, but it might take some time for Switzerland to catch up operationally,” Julius Baer’s head of growth market investment consulting, Kerry Goh, told swissinfo.ch.

That has not stopped Switzerland’s financial centre from creating and trading RMB-denominated financial products, such as derivatives, bonds and funds.

Private banks have already opened thousands of accounts holding up to RMB20 billion in Switzerland, according to the Swiss Bankers Association (SBA).

Billions more are held by the Swiss funds industry or are traded via a range of financial products from Switzerland.

Growth of RMB trading

The Society for Worldwide Interbank Financial Telecommunication (SWIFT), which processes global transactions, measures the popularity of currencies.

The Chinese renminbi shot up from being the 20th most popular currency for global payments in January 2012 to 12th in October 2013.

It occupies 8th position in the list of foreign currency exchange transactions (11th in January 2012).

The RMB is also the second most frequently used currency for trade finance transactions, commonly used by commodities traders – a booming business in Switzerland.

The Swiss Bankers Association believes that by 2020 the RMB could be a top three reserve currency.

Closing the gap

Not all investors are convinced that Western capitalism and Chinese communism can prove a marriage made in heaven. But as Western governments increasingly chase the renminbi dream, these doubts might be dispelled, according to Kerry Goh.

“If Switzerland were to become an RMB hub, it would serve to add some legitimacy to the currency here and boost uptake of RMB products,” he told swissinfo.ch.

There are signs that Switzerland is moving to close the gap between itself and renminbi hub rivals.

In early December, the Swiss National Bank (SNB) said it had engaged with the People’s Bank of China to set up a swap arrangement, but declined to reveal what volume of currencies would be swapped or how long it would take to achieve this result.

The SBA said commercial Chinese banks had unofficially sent “encouraging signals” about setting up operations in Switzerland in future. It is hoped they would fare better than the Bank of China, which sold its Geneva operations in 2012 after a failed four-year stint in Switzerland.

Frontrunners

Renminbi or Yuan?

China’s currency, introduced in 1949 on the founding of the Communist People’s Republic of China, is officially known as renminbi. However, it is denominated in units known as yuan.

The dual name for the currency is similar to the terms sterling (renminbi) and pound (yuan) for the British currency.

Renminbi is roughly translated from Chinese as ‘people’s currency’.

The word yuan dates back to around the 16th century and was the local term for the Spanish silver dollar that was used for centuries by foreign merchants trading in China.

The SBA issued a report in July outlining potential benefits of renminbi hub status for other Swiss industries. These included: lowering exchange rate volatility risks, access to a wider array of suppliers in China and reducing operational costs on the Chinese mainland.

But other sectors, many of which trade extensively in China, have so far remained more reticent than the financial industry about the upside of greater exposure to the Chinese currency. No company contacted by swissinfo.ch was willing to comment.

There was also a muted response to a survey on the subject issued by the Swiss Business Federation (economiesuisse) two years ago, according to chief economist Rudolf Minsch.

Firms operating in China can already exchange US dollars for renminbi through Hong Kong. “There is no information suggesting this creates extra costs or causes serious problems, so some companies do not see the benefit of a Swiss renminbi hub,” Minsch told swissinfo.ch.

However, Minsch is convinced that such a development could indeed bring about savings for firms once they learned to use the system properly. With this in mind, it would be better to press ahead with establishing a Swiss renminbi hub before it is too late, he argued.

“History shows us that once frontrunners get ahead of others in a volume-intensive business it is harder for others to catch up and reach a similar size,” he said.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25

Related Articles


© Copyright 2015 by Finfacts.ie

Top of Page

Asia Economy
Latest Headlines
IMF defers renminbi reserve decision; Devaluations losing firepower
Japan's trade deficit widens and GDP falls despite 33% yen devaluation
China's exports slide in July; Fx reserves dip $42.5bn in month
Chinese manufacturing PMI falls for 5th straight month in July; Japan at 5-month high
China's overseas investments to surge; Ireland got €99m of €46bn invested in EU in 2000-2014
China to overtake US economy in 2026; Income per capita will be 50% of US in 2050
Manufacturing activity in China and Japan contracted in June
China's manufacturing contracted for third straight month in May; Japan in slight rise
Asia accounts for 40% of global output, two-thirds of global growth
China's exports unexpectedly fell in April 2015 after March dip
China's growth in 2015 at slowest since early 2009
China's 2015 foreign trade continues to slide
Singapore remains world’s top location for business on 50th anniversary of independence
China's manufacturing activity fell to a 11-month low in March
China in surprise rate cut to boost sagging economy
Chinese Lunar New Year: Year of the Wood Goat begins this week
China’s manufacturing shrunk in January; Regional rise except Indonesia
Profits of Chinese industrial businesses plunged in 2014
China's growth in 2014 fell to a 24-year low
Services activity in China, Japan and India in moderate rises in December
China’s manufacturing industry remains competitive despite rising wages
China revises 2013 GDP up 3.4% to 56.5% of US economy size
China's manufacturing contracts in December; Japan's grows
China's imports slide in November; Emerging markets slow
Manufacturing PMI stalled in China in November; Fell in Korea, Indonesia , grew in India
China's manufacturing output contracted in November; Japan's accelerated
Ireland not among top 67 destinations for Chinese outbound FDI in 2014
Japan fell into recession in third quarter of 2014
Services slowed in China, contracted in Japan and stagnated in India in October
Manufacturing in South Korea/ Indonesia contracted in October; India in slight rise
Two Chinese manufacturing reports show trading near stagnation levels
Bank of Japan raises money printing target; Spending and wages plunge
China's manufacturing stagnates, Japan in moderate growth
China’s economy in third quarter grew at slowest pace in five years
Chinese exports jump in September; "Sadness will return soon"
World Bank cuts growth forecasts for developing East Asia including China
Japanese business confidence slightly improves; Manufacturing sector weak
Developing Asia remains fastest-growing region in world in 2014
Chinese manufacturing PMI rose slightly in September
Japan reports 26th straight monthly trade deficit; Public debt tops ¥1,000tn