A collection of City of London politicians, seven global banks, three Chinese ones, and 60 European corporations including Tesco, Aston Martin and Diageo have convened for the second meeting of the London-Hong Kong Renminbi Forum, this time held in the UK capital.
Expectations run high as the group - among them the most powerful voices in the world’s financial industry - look to proliferate the use of what will become the next global reserve currency, which will make banks and corporates with the right know-how richer as it continues to develop in the international market.
Yet while this sharing of ideas has real value, it’s amply apparent that the Forum once again hit a buffer. Banks can educate politicians and companies on best practices, the use of available products and services, and hedging methods for the existing pool of offshore renminbi. But any expectation of accelerating real progress is futile until Beijing opens its doors; any discussion otherwise is illogical.
Following the first Forum, which took place May 22 in Hong Kong, Asiamoney PLUS scrutinised the group for not nailing down concrete, or even soft, targets for the offshore renminbi, or CNH, market, and for failing to come up with options outside of what banks in Asia and London are already doing. But it seemed a pity that the world’s best CNH minds weren’t able to be more innovative.
This time round, the group reiterated the need for greater CNH liquidity, uniform documentation, direct cross-quotations between the renminbi and other currencies, and more diverse investment products to sop up existing renminbi deposits. But this time has become far more inward-focused, prioritising the education of European corporates of the possibilities in the renminbi. Engaging new clients and informing them of their options for the renminbi is the single-biggest area that banks can make a difference, and their work has already helped the market worldwide.
But the developments that the global renminbi market needs the most are fully out of the Forum’s control, namely the need to boost CNH volume and freely shift cash on and offshore. These are Beijing’s prerogatives, and while regulators must certainly be aware of the London-Hong Kong Renminbi Forum’s activities, Beijing chooses to keep them at an arm’s length.
The simple act of hedging rate risk continues to be difficult. Right now, there is no interest rate swap market because there is no money market. This is because there isn’t enough capital available offshore to create one, and there are no real common fixings. The same difficulties stop the industry from creating more complex derivative markets.
At this meeting, bankers have alsocalled for more channels for renminbi cross border transactions. Specifically they asked for greater opportunities for CNH banking participants to borrow onshore through their Mainland correspondent banks, and have more access to the China interbank bond market in general.
But without Beijing’s help, the offshore renminbi remains a limited commodity. This means bankers and investors play in a very shallow pool, when all they want to do is dive into the deep end.
While it’s true that the renminbi has become increasingly mainstream as more renminbi business is conducted globally – largely helped by expanding the trading hours of the real time gross settlement system in Hong Kong - and that conducting a highly publicised Renminbi Forum lends itself to positive marketing opportunities, the industry is still left wanting.
What the powerful group should do is consider a new approach to its meetings. Rather than convene in what looks like a conference setup, where those in the know educate those out of it, the Forum could act as a powerful lobbying group.
The renminbi’s internationalisation is a key goal for China itself. The Forum provides the perfect pedestal to voice innovative ideas on how the Mainland can advance its cause through best market practices. It’s a beneficial conclusion for everyone.
This could be the next goal of the Forum. Already apparent from its first two meetings, the group has become more focused on what it should be, and where it can wield authority. And it has broadened its membership to include two more Mainland policy banks, China Construction Bank and Industrial and Commercial Bank of China (ICBC), which surely has the ear of the country’s top financial regulators.
As the London-Hong Kong Renminbi Forum grows to become more established, it should be more explicit about its aspirations and not just behind closed doors. The market will need to wait at least six more months to find out if the world’s biggest banks are ready to challenge China’s policies.