China plans steady advance for RMB internationalisation

China plans to “steadily advance” the process of the renminbi’s (RMB) internationalisation, strengthening the currency’s global profile by making its financial market more accessible to international investors via product supply and trading mechanisms, say industry experts.

The comments follow a weekend article issued by the People’s Bank of China (PBoC), which it announced plans further boost the global use of the RMB, focusing on cross-border trade investment. The central bank also pledged to improve the liquidity of RMB-denominated assets and simplify the process for foreign investors to entering the Chinese market.

The PBoC said that the RMB’s global profile will gradually rise as the nation's strength grows and its reform and opening-up agenda deepens, reflecting the international community's confidence in China’s economic development.

Zhou Tianyun, a professor at Sun Yat-sen University’s International School of Business and Finance, said all-around institutional opening-up of the Chinese financial market is the key to increasing RMB assets’ liquidity.

Two-way opening-up, including connect programmes in the country’s stock and bond markets, should be deepened. More financial products should be rolled out in the onshore market while trading activity in the secondary market in China should be further elevated, Zhou added.

China’s internal growth momentum and the resilience of its economy have helped the currency to remain largely stable, said Cheng Shi, chief economist at ICBC International, thus adding to the attractiveness of RMB assets at a time of rising global volatility complicated by stagflation worldwide and the US Federal Reserve’s tightening monetary policies.

“The investment value of RMB assets is especially noticeable at present thanks to the controllable inflation level and the clear economic recovery route in China,” he added.

Guan Tao, chief economist of BOC International, expects more foreign investors to enter the Chinese capital market given their relatively lower allocation of RMB assets at present.

US investment bank Morgan Stanley forecasts that the RMB will account for 5% to 10% of global foreign exchange reserve assets by 2030, making it the world's third-largest reserve currency after the US dollar and the euro.

China’s cross-border renminbi receipts and payments in non-banking sectors reached 27.8 trillion yuan (US$3.91 trillion) from January to August, up 15.2% year-on-year, according to data from the central bank.

The RMB’s progressive internationalisation is reflected by its lifted weighting in the International Monetary Fund’s (IMF) Special Drawing Rights currency basket, which became effective in May, according to Zhou Maohua, an analyst at China Everbright Bank. Its current weighting of 12.28%, up from 10.92%, shows the wider use of RMB in international payment and settlement, reserves, investment and financing, he said.

Ming Ming, chief economist of Citic Securities, said that there is still much to explore concerning the Chinese currency's function in financing and investment, which China should encourage by further opening up the onshore bond and interest rate swap markets while providing necessary hedging tools.

Lazard sets up geopolitical risk unit

Investment bank Lazard has set up a unit of advisors to advise chief executives and corporate directors on geopolitical risks, with reports suggesting that the bank is betting it can raise fees by combining financial advice with guidance on an increasingly volatile world.

The company’s new geopolitical advisory team is being launched as multinationals grapple with increasing global tensions, from the Russian invasion of Ukraine to rising antagonism between the United States and China.

Lazard announced the team along with the appointment of Jamie Messick, the former deputy director of intelligence at the CIA and co-chair of the President’s Intelligence Advisory Board in the Barack Obama administration. Messick, who until recently worked with Kissinger Associates, joins Lazard as a senior advisor on the Geopolitical Advisory Group.

Peter Orszag, chief executive of Lazard’s financial advisory business and former White House budget director under President Obama, said the bank saw an opportunity to assess the financial consequences of geopolitical events that complement its current global practices.

He added that Lazard will differentiate its offering from other risk advisory by pairing global affairs advice with its dealmaking and data analytics expertise.

“There are other groups that assess geopolitical risks, but nobody combines that with financial analysis the way we can,” Orszag said in an interview.

The move is prompting Lazard, which advises major companies such as Google, IBM and BT Group on mergers and acquisitions, to compete with “pure play” international affairs consulting firms.

Central banks “see economic downturn as price of controlling inflation”

Most developed economies are likely to experience recessions over the coming year, as global central banks continue to tighten monetary policy in order to address persistently high inflation, says Aviva Investors. Reducing inflation is policymakers’ priority and economic slowdown or recession is considered a price worth paying.

In its latest In-House View, the global asset management arm of UK insurer Aviva expects the extent of downturns should however be modest, as private sector balance sheets are robust meaning there is no need for significant de-leveraging and retrenchment. But growth risks remain to the downside, especially over winter months as the impact of high energy prices and restricted supply is felt, especially in Europe.

The effect of the major supply-side shock following Russia’s invasion of Ukraine is still being felt, but central banks now feel they must restrict demand growth to the pace of constrained supply to counter the more underlying inflation impulse that is now compounding the impact of the energy price spike alone.

The combination of slowing growth, high inflation and aggressive central bank policy is a difficult one for financial markets. Aviva Investors believes that inflation should fall back next year, but risks are to the upside. Markets can be expected to remain volatile until underlying conditions switch more decisively towards normality.

Michael Grady, Head of Investment Strategy and Chief Economist at Aviva Investors, comments: “For asset markets that had become used to cheap money and unlimited liquidity, a challenging period of adjustment to the new regime will be necessary. This will take some time to play out, although there can still be investment opportunities while it does.

“We have a preference to be modestly underweight duration, with upside inflation risks outweighing the downside recession risks. We are broadly neutral equities, with the rise in real yields putting further pressure on multiples. We also expect to see downward revisions to earnings expectations in coming quarters.

“We are neutral on credit, where we think the pricing of high yield spreads fairly reflects recession risk, although the bias is still for further widening from here. The all-in yield on investment grade paper makes it relatively attractive. In currencies, we continue to prefer to be overweight the US dollar due to greater economic resilience and higher underlying inflation in the US.”

Coinbase deal allows Google to accept crypto payments

Google has signed a deal with cryptocurrency exchange platform Coinbase, which will enable the tech giant to accept cryptocurrency for some of its cloud computing clients. It will also help Google to attract cutting-edge crypto and Web3 companies that want to use digital currencies as their payment method.

Coinbase will receive a percentage of the payments, which will allow it to continue to diversify away from revenue based on trading volume.

The announcement came on Tuesday as Google opened its three-day Cloud Next conference highlighting a range of the company’s newest products and strategies. Although the annual event is less high profile than may Apple’s annual presentation or even Tesla’s AI Day, there have been several interesting developments to at this year's event.

Analysts suggested that as Google is now one of the older stalwarts of the tech industry, there might be some surprise to that they plan to begin to accept crypto as payment for some of their cloud computing services. They will be relying on Coinbase to facilitate these transactions, which is expected to be operational in early 2023.

The deal could potentially prove to be a major boon for both companies as they look to expand their offerings and diversify their business models. For Google, it allows them access to fast growing companies operating in the Web3 space, which many still believe has big potential despite recent hiccups.

BNY Mellon uses SWIFT Go for Egypt-China cross-border payment

BNY Mellon, which has just launched its Digital Asset Custody platform in the US, has successfully facilitated the “first-of-its-kind, fully-transparent payment transaction” between Egypt and China.

The bank added that previously, low-value international payments experienced limited cost transparency and uncertainty over settlement timelines. Leveraging the new SWIFT Go service, BNY Mellon acted as an intermediary for a payment between QNB Al Ahli Egypt, the remitting bank, and Shanghai Pudong Development Bank, the beneficiary bank.

Delivery of funds to the beneficiary and confirmation to the originating bank was completed in less than three hours, with previous cross-border transaction between Egypt and China taking over two days.

“Businesses and consumers around the world have faced challenges when making smaller international payments, which include limited transparency over costs and uncertainty over when the funds will be delivered, said the bank. In July 2021, BNY Mellon announced it was the first US bank to support the SWIFT Go service that enables financial institutions to facilitate efficient and reliable cross-border payments between consumers or SMEs.

Isabel Schmidt, Co-Head of Global Payments Products at BNY Mellon commented: “Thanks to this collaboration, our clients in the region will see a wide range of benefits, including faster speeds, more predictable fees, and greater security.” Mohamed Bedeir, CEO of QNB AlAhli, added that the collaboration not only enhanced the payment industry, but also supported financial inclusion.

Standard Chartered launches Trade Track-It

Standard Chartered has launched Trade Track-It, described as a digital trade transaction portal providing 24/7, near real-time end-to-end visibility of trade transaction status globally.

The bank said that the new solution will mean that clients no longer need to contact the bank to learn the status of their trade transactions, saving considerable time. The integration of DHL’s tracking system also means that only a single portal needs to be used through the Straight2Bank platform, providing access to trade document delivery.

Clients will also be able to use vessel tracking, using Lloyd’s List Intelligence’s service, providing near real-time visibility of ocean shipments’ geo-locations.

“In line with Standard Charter’s sustainability goals, Trade Track-It also includes a sustainability indicator,” the bank added. “This allows clients to track whether their trade transactions meet the bank’s sustainable trade finance standards.”

Samuel Mathew, global head of flow and financial institution trade at Standard Chartered, said: “Trade Track-It complements our existing client service channels by providing service channel optionality to clients. The digital portal also empowers our clients to make informed business decisions more quickly, with one-stop access to the trade transaction information they need to better facilitate trade flows in an efficient and transparent manner.

“The inclusion of a sustainability indicator further demonstrates our commitment to support our clients in achieving their own sustainability agendas.”

Milestone for China’s digital currency

Transactions using China's digital yuan surpassed 100 billion yuan (CNY) (US$13.9 billion) as of 31 August announced the Bank of China, as the country continues its roll-out of a central bank digital currency (CBDC).

The figure for made transactions during its pilot phase makes the digital yuan (e-CNY) the world’s most widely adopted CBDC.

In a 10 October post on its official WeChat page, the Bank reported that by the end of the summer, the number of transactions made in 15 provinces within the CBDC pilot framework had reached 360 million. More than 5.6 million merchant stores already support the e-CNY as a legal tender, said the post.

The pilot is also expanding among some state institutions, covering a wide range of citizen payments, the post added.

“Multiple e-government service platforms have opened digital renminbi payment services, supporting online and offline channels to handle various public utility payments, using digital renminbi to issue tax rebate funds, special funds for monthly medical insurance payment, funds for helping people in need, and ‘specialized, special and new’ enterprise support funds, etc.”

Future plans for the project include launching cross-border payments between Hong Kong and mainland China, actively exploring the multilateral cross-border option in collaboration with the Bank for International Settlement (BIS) and following the principle of “anonymity for small amounts and traceability of large amounts” to protect the user’s personal data.

Since its first CBDC trials launched in April 2020, the People’s Bank of China (PBoC) has been aiming to eventually replace cash with the digital yuan. Last month it announced plans to deploy the e-CNY to four of the country’s provinces, including Guangdong, following an earlier pilot that ran only in separate cities.

A Cointelegraph report commented that the Bank of China reported about US$13 billion (CNY 87.5 billion) worth of transactions by January 2022, so the latest figures in this week's update could mean that in the past seven months, the overall amount of new transactions was no more than US$1 billion.

Citi to launch 24/7 USD clearing before year-end

Citi Treasury and Trade Solutions has announced plans to launch round-the-clock payments clearing to its institutional clients later this year.

The 24/7 service is designed to enable Citi’s financial institution customers to make US dollar payments 24 hours per day, seven days per week including public holidays.

Citi indicates that this will help support clients’ payment innovation through various key use cases. This will include meeting collateral requirements on weekends and public holidays, processing late-hour payments, supporting interbranch funding and improving clearing access for markets outside of US working days, for example in the Middle East region.

Citi’s global co-head of payments and receivables for its Treasury and Trade Solutions division Debopama Sen says: “At Citi, we approach everything with a client-first philosophy, focusing on both meeting our clients’ needs now and helping them prepare for the future.

“This means thinking about how clients could use our solutions at scale, with minimal investment on their part. 24/7 Clearing exemplifies this approach, working across clients’ channels of choice starting with SWIFT, and soon via APIs.

“Our clients are looking for access to always-on payments capabilities as entire industries shift to 24/7 business models. Through 24/7 Clearing, we are enabling our financial institution clients to innovate and meet these changing expectations for availability and speed of processing in cross border payments,” says Amit Agarwal, global co-head of payments and receivables at Citi’s Treasury and Trade Solutions.