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The Chinese Renminbi made great strides towards becoming a truly international currency when it was included in the International Monetary Fund's Special Drawing Rights in late 2016, alongside other major reserve currencies such as the Dollar, Euro, Yen, and the Pound Sterling.

Another major development in the Renminbi's internationalisation followed in the summer of 2018, when the People's Bank of China (PBoC), the country's central bank, issued a circular that further opened the country's onshore financial system to international investors and, in so doing, gave them a wider range of opportunities to hedge their investments in China.

With a presence in China for over 150 years, HSBC is well positioned to cater to these investors as its deep-rooted experience in the country as well as its extensive local expertise, puts it in a unique position to support their access to the Chinese financial markets.

Volkan Benihasim, Head of FX cash trading at HSBC, shares his insights into the circular's significance.

How significant is Circular 159, issued by the PBoC in June 2018 for foreign investors?

The overarching goal of the Circular is to promote trade and cross-border investments into China.

The policy was put in place to cater for the hedging needs of institutional investors in China, and provide them with greater flexibility to access the onshore and offshore FX facilities.

The distinctive characteristic of the Circular is that it gives offshore investors greater freedom in accessing the onshore capital market in China. Previously, these investors had to be linked to an onshore bank to hedge their qualified bond and securities investments. Now they are able to choose to access either the onshore or the offshore FX vanilla products as well as the derivatives market to hedge their bond and equity exposures as best fits their hedging needs. Financial institutions and corporates will be able to access these products as long as they can prove a real need for hedging instruments.

This is particularly significant for those investors who previously may not have had access to the onshore market and had to rely solely on offshore facilities for their hedging needs. Now, international investors are able to hedge their Renminbi exposure using either the offshore CNH or the onshore CNY.

How are CNH and CNY being affected by this development?

The new policy allows offshore investors to access both onshore and offshore markets for the FX hedging solution of their choice. When there is a big gap in two markets, offshore investors can switch their hedging from an expensive market to a cheaper market easily. This will help bring greater convergence between CNH and CNY.

An investor or a corporate would only need to prove they have a real need for activities, such as hedging, is in line with their asset holdings in the onshore market. As China continues to open up, the investment channels to offshore investors, the related FX hedging activities will increase accordingly; thereby narrowing the gap between the onshore and offshore curves.

What impact is this having on the Renminbi as a transactional currency?

China has promoted the use of the Renmnibi as a trade, investment and reserve currency from the outset of the Renminbi internationalisation process, and we see Circular 159 as an integral part of this policy. The Renminbi is already widely used as a currency for cross-border transactions by many Asian corporates. We believe that this new policy is providing a strong push for further Renminbi investments in China.

What products and channels does the Circular bring into scope?

While the new policy covers a wide range of foreign exchange instruments, including spot, forwards, swaps, cross-currency swaps, and options; FX forwards and FX swaps are particularly relevant as these can now take advantage of the onshore interest rates.

To facilitate international investors' access to these instruments – either onshore or offshore – HSBC has put in place a dedicated onboarding process in line with the Circular. Through our global network of offices we can assist our overseas clients with access to the Renminbi in a simple and direct manner. And, as a direct market participant in the China Foreign Exchange Trade System (CFETS), HSBC Hong Kong can provide investors with access to the Chinese onshore foreign exchange market.

HSBC can also guide international institutional and corporate clients through the various channels that have been brought into scope by the Circular to facilitate their investments into China capital markets, as well as cross-border business with China. These include the China Interbank Bond Market, the Bond Connect and Stock Connect schemes and the Renminbi Qualified Foreign Institutional Investor (RQFII) initiative.

HSBC has one of the largest global RMB networks with established RMB capabilities (in terms of trade settlement and payments) across 50 markets; and has been recognised as the top Global RMB Bank in many industry surveys and rankings.


Volkan started his banking career in 2001 and joined HSBC 15 years ago in Turkey. He has extensive experience in FX, Rates and Credit. In 2017 he assumed the role of Head of FX Cash Trading, Asia Pacific; prior to this he was Head of Local Currency Rates and Credit, EMEA. He currently runs FX Cash Business Globally following his recent promotion.

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