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Financial industry agree new offshore RMB guidelines

14 Feb 2012

New guidelines will improve straight-through-processing for offshore renminbi.

Hong Kong’s financial industry has agreed new guidelines with SWIFT to improve the efficiency of processing offshore renminbi transactions.

The agreement will allow market participants to differentiate between onshore and offshore transactions for straight-through-processing even though the renminbi only has a single ISO currency code, named CNY.

SWIFT, the financial messaging network, worked with 24 institutions to set up three working groups that looked at how the issue affected cash and trade, currency, money market and derivatives, and securities.

As 78% of all offshore renminbi transactions are made in Hong Kong, the network worked with financial institutions in the special administrative region.

The new set of guidelines relate to the usage of ISO 15022 and MT messages.

“The fact that the offshore and onshore markets have different spots rates and different yield curves created problems when processing deals,” said Lisa O’Connor, SWIFT’s initiative director of RMB internationalisation. “The group decided to help differentiate between onshore and offshore in ISO 15022 messages.”

She offered the example of a typical FX trade. Prior to the new guidelines, a bank's front office would transact the deal using the code CNH (or CNO, or CNX), the code by which offshore renminbi is commonly known.

However, back and middle office were only able to use the currency code CNY, which did not tell counterparties whether the deal was offshore or onshore renminbi.

Under the new system the front office of a bank can continue to use CNH as a code but the ISO 15022 will log that trade was settled in Hong Kong . This allows all counterparties to the deal to know it was transaction was conducted offshore.

SWIFT data shows that the renminbi is growing faster than any other payment currency globally. By the end of 2011 it was the 17th most used payment currency, experiencing a monthly compound growth rate of 14.8% compared to 0.7% for all other currencies.

Despite this, the renminbi remains under-utilised when compared to its trade levels. China accounts for 9.6% of the world’s trade but payments for goods and services in renminbi amount for less than 1%, according to SWIFT.

For the world’s reserve currencies, the percentage of payments is typically higher than the percentage of trade.

14 Feb 2012

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