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New FX tools for monitoring RMB risk

Thomson Reuters has published a report about its renminbi (RMB) indices – the TR/HKEX RMB Currency (RXY) Indices – which describes the development of the Chinese currency into an international trade currency and the liberalisation of the RMB market, underlining the need for this group of indices to monitor and hedge RMB movements.

According to Thomson Reuters, its RXY Indices are closely correlated to one of the best regarded RMB indices, the PBoC's CFETS RMB Index. The financial data services company says: “The RXY Indices are probably the only currently RMB tradable indices that are publicly available to the market. They are suitable for serving as references for financial instruments including futures, options and exchange traded funds (ETFs).”

The ascent of RMB

The report notes some of the turning points in the RMB's journey to becoming an international currency:

  • Over the past two decades as China's manufacturing sector has burgeoned, the RMB has gone from a fixed peg to the dollar, which was switched to a managed floating rate in 2005.
  • As of August 2015, the PBoC changed this so that the CNY/USD exchange rate is fixed with market makers’ submitted rates.
  • In 2009, China became the world's biggest exporter, having overtaken Japan, the US and Germany in the past decade. Its merchandise exports in 2015 were USD2.27 trillion (see graph below).
  • November 2015: the International Monetary Fund (IMF) announced the inclusion of the RMB in its basket of reserved assets, the Special Drawing Rights (SDR) basket of currencies, effective from October 2016.
  • On 11 December 2015, the PBoC launches three new RMB currency policy indices: the CFETS RMB Index, the BIS Currency Basket RMB Index and the SDR Currency Basket RMB Index.
  • The new policy seeks to shift the global emphasis of the RMB exchange rate from RMB/USD to RMB/multiple currencies.

The RXY Indices were developed by Thomson Reuters and HKEX to provide transparent and tradeable exchange rate tools for global market participants who are looking to monitor RMB movements and hedge RMB exchange rate risk.  

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