Central Bank: RMB Can Be Traded Directly Against The Euro

The central bank said that this will help to form a direct exchange rate of RMB against the euro, reduce the exchange cost of the main body of the economy, promote the use of RMB and the euro in bilateral trade and investment, help strengthen financial cooperation between China and Europe, and support the growing economic and financial relations between China and Europe.

The euro will become the sixth type of foreign exchange that can be directly traded in China, and the other includes the US dollar, Australian dollar, New Zealand dollar, Japanese yen and pound sterling.

Earlier this year, the central bank launched a direct trading of Renminbi against the pound in June 18th this year.

The original version of the press release is as follows:

Authorized by the people's Bank of China, the China Foreign Exchange Trading Center announced the direct trading of RMB against the euro in the inter-bank foreign exchange market.

The direct trading of RMB against the euro on the basis of market principles is an important move for China and Europe to jointly push forward bilateral economic and trade relations.

Developing Renminbi direct trading with the euro will help to form a direct exchange rate of RMB against the euro, reduce the exchange cost of the main body of the economy, promote the use of RMB and the euro in bilateral trade and investment, help strengthen financial cooperation between China and Europe, and support the continuously developing economic and financial relations between China and Europe.

The people's Bank of China has actively supported this.

Customs statistics show that the total value of bilateral trade between China and the EU in the first half of this year was 1 trillion and 790 billion yuan, an increase of 9.6%, accounting for 14.4% of the total value of imports and exports, which exceeded the total value of bilateral trade with the United States for 1 trillion and 570 billion yuan.

As the first batch of RMB direct traders in the inter-bank foreign exchange market, the Agricultural Bank of China said that it successfully promoted its Frankfurt branch and Deutsche Bank London branch to complete the first direct paction of RMB against the euro in the overseas interbank market.

In addition, HSBC (China) Limited announced today that it has been approved to become the first RMB in the interbank foreign exchange market to do direct trading with the euro.

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In the view of Song Yuesheng, director of HSBC China global capital market, the direct trade between the RMB and the euro is another significant step toward internationalization.

"Benefiting from the convenience brought by currency direct trading, trade and investment between China and the two major global economies of the EU will be further strengthened."

Song Yuesheng said that with its leading position in Renminbi business and strong strength in foreign exchange trading, HSBC will continue to assist businesses and investors in making full use of the convenience of RMB internationalization.

Bloomberg quoted Liu Dongliang, an analyst at China Merchants Bank, as saying, "this is another step in the internationalization of RMB, but this is a new step.

And the real impact of the business is limited because the amount of Renminbi and non US currencies in Chinese onshore pactions is too small to promote real pricing power.

Interbank

The renminbi deals with the euro and implements a direct trading market maker system. The direct market maker bears the corresponding obligations, and continuously provides the two way quotations for buying and selling direct pactions between the renminbi and the euro, providing liquidity for the market.

The foreign exchange trading center also said it would improve the way the RMB was priced into the euro.

The central parity of the RMB against the euro is then calculated according to the exchange rate between the central parity of RMB and the US dollar and the US dollar to the euro exchange rate, which is based on the quotation made by the direct trading market maker. That is, before the opening of the interbank foreign exchange market, the China foreign exchange trading center makes an inquiry to the market maker of RMB direct trading with the euro in the inter-bank foreign exchange market, and the average price of the direct market maker will be quoted on average, so that the central parity of RMB to the euro will be obtained.