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China has transformed itself into one the world’s largest economies, second only to the U.S.   The development of China’s economy over the past decade and increased global trade have been the main drivers to RMB globalization.  The Renminbi (RMB) is the official currency of China.  Although RMB traded in the spot onshore market and offshore in Hong Kong are the same currency, it has different exchange rates due to different supply and demand conditions.  Separate currency codes have emerged to represent onshore and offshore RMB.  CNY is used to represent onshore RMB within China while CNH is used to represent offshore trading in Hong Kong.

The Chinese Yuan (CNY) spot market traded at its highest level in 19 years in onshore trading last week at just under 6.2000 against the USD.  This is a 25% appreciation since 2005, when the People’s Bank of China, the Chinese central bank lifted their currency peg at 8.2800 against the USD.

Trading in the onshore spot CNY market is facilitated by CFETS, the China Foreign Exchange Trading System.  CFETS trading can be anonymous, where CFETS provides the clearing service as the central counterparty, or bilateral trading where the trading parties clear and settle with each other.

In an attempt to internationalize their currency, China has allowed cross border trade to be settled in CNH, or offshore RMB.  This offshore or deliverable CNH market, which began trading in 2010 in Hong Kong, allows foreign investors to gain exposure to China.  The most popular route, the ‘dim sum’ bond market, allows investors to purchase Chinese government and foreign firm bonds issued in Yuan.

CNH trades through bank single dealer platforms, with Deutsche Bank’s Autobahn being the first SDP to offer electronic CNH Trading.  Other banks offering CNH trading access through their SDP’s includes Citibank, RBS, and UBS.  CNH also trades via multi bank platforms such as Thomson Reuters Matching and recently launched deliverable CNH futures via CME.

The Chinese government has allowed further currency offshore centers supporting Singapore as the second offshore financial market to facilitate CNH trading.  And with China increasing global trade and settlement in CNH, the Australian press reported last week the Australian government may seek a deal with the PBOC enabling direct conversion of Australian dollars into Chinese Yuan.

Filed under: AsiaPac, FX, News, Randy Hebert, Single-Dealer Platforms, Web trading technology | Tagged: CNH, CNY, RMB |