The Goal Of China'S Central Bank To Expand Offshore Renminbi Market Is More Distant.

As a part of winning the position of international reserve currency, China pushes more use of RMB in overseas markets. However, in the face of devaluation and capital controls, the goal of the central bank to expand offshore renminbi market is becoming more distant.

8.11 after the reform, Hongkong's largest offshore renminbi market is becoming more and more normal. With the Central Bank of China cut interest rates several times, there is a sharp contrast in the liquidity of the onshore market.

The high cost of the offshore renminbi market has greatly reduced the financing function. According to Bloomberg data, offshore renminbi bonds, commonly known as "point debt", have been issued at about 138 billion 600 million yuan (excluding certificates of deposit) since the beginning of this year, a decrease of about 40% compared with the same period last year. Among them, the scale of issuance after the 8.11 exchange rate reform is only about 23 billion 900 million yuan, down 67% compared with the same period last year.

On Friday, China's Ministry of Finance bid for RMB bonds 14 billion yuan in Hongkong, and the winning rates for 4 terms were all higher than the yields on onshore treasury bonds. According to the announcement of the Hongkong monetary authority, the oversubscribed 2 billion yuan for overseas central bank institutions is only 0.05 times.

"If offshore RMB liquidity continues to tighten offshore, it will not be conducive to the cultivation of offshore RMB market, especially the RMB will be used as an international financing currency," HSBC Global Research senior foreign exchange strategist Wang Ju said in a telephone interview.

Strike arbitrage

If RMB funds can cross borders freely, the abundant liquidity in the onshore market can attract funds to offshore higher income, ease liquidity constraints and eventually converge interest rates.

However, in order to alleviate the short pressure of the rising offshore RMB market, the Central Bank of China recently tightened the way of RMB exit, which objectively expanded the supply gap of offshore RMB.

Bloomberg quoted people familiar with the matter last week as saying that China's central bank recently requested some domestic banks to suspend cross-border financing of offshore renminbi bank accounts, and also called for the suspension of eligible offshore RMB clearing banks and participation in bank bond repo spanactions. The move is intended to prevent domestic capital from going offshore to carry out arbitrage.

Since its opening in June, the repo market in China has become one of the sources of Renminbi funds for overseas banks. In a report released in November 13th, Standard Chartered Bank estimated that the total repo contracts currently held by offshore banks could be as high as 200 billion yuan.

Barclay's Wynne said. RMB The market is still on the path of devaluation, and the market tends to borrow from the renminbi to buy US dollars. Although the central bank recently asked for a suspension of cross-border financing to offshore banks to slow down the purchase of the US dollar, the market's interest in this direction has not diminished.

　　 "Not yet depreciation In place "

8.11 in the month of foreign exchange reform, the offshore renminbi depreciated by 2.6% and the offshore renminbi depreciated by 3.5%. The Central Bank of China launched a series of regulatory measures and entered the market, and the renminbi strengthened slightly in September and October. In November, the pressure of RMB devaluation began to rise again. A number of agencies also issued a pessimistic report. Among them, the Bank of America and Merrill Lynch estimated that the yuan would depreciate to 10% against the US dollar at the end of next year or 7.

This week's report by Jason Daw, head of Asia's foreign exchange strategy at Societe Generale, Singapore and Guillermo Felices of Barclays in Europe, suggests that the US dollar should be shorted and offshore RMB should be shorted.

"The RMB exchange rate has not yet been derogated," Wang Ju said. "The possibility of a one-off depreciation of the PBoC is unlikely. It is likely that the central bank will gradually release pressure, and it is expected that the renminbi will gradually be derogated in the next one to two years."

In view of the decline in the financing function of the offshore RMB market, Wang Ju said that China should relax the floating rate of the RMB against the US dollar and release the pressure of RMB depreciation, thus easing the tension of offshore RMB liquidity. "If the renminbi is depreciated, the attractiveness of Renminbi denominated assets to investors will rise again."

Xue Junsheng, acting chief economist of Hang Seng Bank, believes that offshore RMB liquidity will improve next year. He said on the phone that "many clients are worried about exchange rate risk and will turn the renminbi into US dollars after the reform. The short-term market sentiment will continue to be affected, but the peak of the spanfer is over."

　　 exchange rate Dominant interest rate

8.11 after the reform, the short-term interest rate of RMB in China is stable, and the 7 day repurchase is only 2.3% above the 30 base points. The cost of RMB capital in Hongkong market fluctuated sharply, which was as high as 9.90%. Analysts interviewed by Bloomberg said that this is mainly due to the market's further devaluation of the renminbi and the purchase of dollars from offshore renminbi. The increase in demand for offshore renminbi has driven interest rates up.

Wang Ju explained that the offshore RMB market is still the interest rate market expected to be dominated by the exchange rate. The devaluation of the RMB is expected to be inevitable. Investors need corresponding interest rate compensation, which will be reflected in the offshore RMB interest rate level.

On Thursday, the central parity of RMB against the US dollar was the weakest since the end of 8, falling 19 points to 6.3896. Offshore renminbi fell 0.15% against the US dollar at 6.4327, while the offshore renminbi fell 0.01% against the US dollar, closing at 6.3896, while the offshore market exchange rate was 431 points weaker than the onshore market (1 US dollars to 0.0001 yuan per point).

In the perfect capital market structure, market exchange rate and interest rate should be basically the same, but the particularity of China's offshore offshore market segmentation will lead to the coexistence of different interest rates, Jose Wynne, director of foreign exchange research at Barclay, said in a telephone interview.