China’s central bank will soon pick an approved Chinese bank to clear yuan trades in Singapore, making it easier for the Southeast Asian city-state to handle the rising amount of regional trade that is denominated in the Chinese currency.
The People’s Bank of China (PBOC) may also give the Monetary Authority of Singapore (MAS) a licence to invest in onshore Chinese financial products, MAS Chairman Goh Chok Tong told reporters in Beijing.
The Wall Street Journal, citing unnamed sources, reported last week that China was weighing steps to expand trading of its currency outside the mainland and may select Singapore as a second yuan-trading hub after Hong Kong.
Analysts said that while Singapore will likely grab a large slice of the fast-growing offshore yuan business, PBOC will ensure that Hong Kong, a special territory of China, remains the paramount centre, a view that Goh also expressed.
“We have no ambition to try and rival Hong Kong. Singapore cannot rival it because Hong Kong is part of China. It is close to China; it has got much more trade with China,” the Straits Times newspaper quoted Goh as saying.
Goh, Singapore’s former prime minister, said, however, the city could play a primary role in facilitating trade between China and the countries of Southeast Asia and India.
Goh also told Singapore media that PBOC was considering granting MAS or qualifying foreign institutional investor, or QFII, status which will allow the Singapore central bank to invest in onshore Chinese financial products.
Singapore is also the region’s trading hub for many of the commodities that China imports and more than 3,000 mainland firms operate in the city.
The Straits Times said the designated Chinese bank for clearing yuan trades in Singapore was likely to be either Bank of China (3988.HK) (601988.SS) or Industrial and Commercial Bank of China (ICBC) (1398.HK).
The Business Times newspaper noted ICBC recently set up a yuan-processing centre in Singapore for Southeast Asia.
China began allowing its currency to be used to settle international trades in 2009 through a scheme involving several Chinese cities along with Hong Kong, Macau and various Southeast Asian countries, including Singapore. The scheme was extended to the rest of the world in 2010.
Hong Kong currently dominates the offshore yuan market, thanks to large pool of yuan deposits in the territory and the slew of yuan-denominated bonds issued in Hong Kong by Beijing and various Chinese firms.
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