Renminbi clearing in Frankfurt
- The RMB initiative
- Possible RMB clearing model for the Frankfurt financial centre
- Renminbi clearing in Frankfurt and additional developments relating to offshore clearing
- Additional milestones
The RMB initiative
Since 2012, the German state of Hesse's Ministry of Economics has been making considerable efforts to establish Frankfurt as a renminbi trading venue. The Federal Ministry of Finance supports this objective. In July 2013, a steering committee was set up, in which the ministries and the Deutsche Bundesbank play an active part. Whilst the US dollar is still the most widely used currency for trade with China, the use of the renminbi (RMB) as a currency of account has gained significant ground in the past few years. In trade finance, the Chinese currency has surpassed the euro and now occupies second place, directly after the US dollar. Measured in numbers of transactions, the RMB is now fifth in the international payment transactions ranking, with just under 2% of all payments effected worldwide being cleared in RMB. China is Germany's third most important trading partner after France and the Netherlands as well as its leading trading partner outside the EU. An efficient clearing solution will serve to strengthen economic ties between Germany and China and will give a boost to the further opening-up of the Chinese economy – a matter that is of key significance for the government of the People's Republic.
October 2013 saw the first meeting of the "RMB Initiative Group", in which Frankfurt-based Chinese banks, German financial services providers and the Deutsche Bundesbank participate. Leading German enterprises and trade associations support this initiative.
The initiative group established a number of working groups. One working group, headed by the Deutsche Bundesbank, has devoted its energies to establishing and enhancing an RMB clearing solution for Frankfurt in its capacity as a financial centre. Pivotal banks with an interest in RMB transactions, the Deutsche Börse Group and the financial services provider SWIFT are involved in the working group.
Possible RMB clearing model for the Frankfurt financial centre
The working group discussed three possible RMB clearing models for Frankfurt before making an assessment based on the various pros and cons.
- Correspondent bank model
- Clearing bank model
- Clearing house model
You can download the relevant discussion paper below.
Being keen to adhere to the start-up time, but also with a view to containing the investment and operational costs, the members of the working group initially decided in favour of setting up a clearing bank which could be expanded into a clearing house as and when volumes and business needs dictated.
Renminbi clearing in Frankfurt and additional developments relating to offshore clearing
Since November 2014, it has been possible to clear RMB payments directly with China via the RMB Clearing Bank (Frankfurt branch of the Bank of China) set up by the Chinese central bank for this purpose. The clearing bank manages accounts denominated in Chinese currency for German and European banks and business enterprises. These accounts are used to settle RMB payments between the clearing bank's RMB account holders, as well as cross-border RMB payments with the People's Republic of China, Hong Kong or other offshore centres.
The Frankfurt-based RMB Clearing Bank came into being after the Deutsche Bundesbank and the Chinese central bank, the People's Bank of China (PBoC), signed a memorandum of understanding regarding the clearing and settlement of payments denominated in renminbi in the city of Frankfurt in March 2014.
Around the middle of June 2014, the People's Bank of China (PBoC) chose the Frankfurt branch of the Bank of China as the envisaged RMB Clearing Bank. The PBoC allows this clearing bank to access onshore RMB liquidity and its internally operated payment system.
Establishing a network of offshore RMB clearing banks constitutes an integral part of the Chinese central bank's long-term strategy to open up the markets through greater convertibility of the renminbi while retaining its ability to exercise control. By following this path, the Chinese government seeks to strengthen RMB offshore markets, giving importers outside China a means of paying in renminbi. The PBoC has now initiated five offshore RMB clearing locations across Europe (Frankfurt, London, Paris, Luxembourg and Paris) and close to 20 clearing banks around the world.
In early October 2015, the Chinese central bank commenced operation of its new payment system, China International Payment System (CIPS), thus getting one step closer to its goal of internationalising the renminbi. The system was co-developed by 19 banks, including eight foreign institutions, including Deutsche Bank, Hongkong and Shanghai Bank (HSBC) and Citibank. These are now the first banks to be directly connected – albeit via their branches in mainland China – to CIPS. In a second step, foreign banks are to be enabled to participate directly from outside China.
CIPS is designed to provide an infrastructural buffer for the expected growth in RMB transactions and only clears offshore payments denominated in that currency. At a political level, CIPS will foster integration into the international clearing system, reduce the drawbacks in clearing efficiency with respect to other currencies (especially the US dollar) and promote the use of RMB in global trade. It is generally regarded as a complementary measure to assist the ascent of the renminbi to global reserve currency status.
- September 2015 saw the establishment of the Sino-German Center of Finance and Economics. Operating under the auspices of the Goethe University in Frankfurt, its Board of Trustees will be co-chaired by the People's Bank of China and the Deutsche Bundesbank. The sino-German academic research centre is designed to promote independent research efforts and education and training with a view to fostering a better bilateral understanding.
- Mid-November 2015 saw the establishment of the first official trading venue for Chinese investment products traded in RMB outside the People's Republic of China. Earlier that year in May, the Deutsche Börse Group, the Shanghai Stock Exchange and the China Financial Futures Exchange issued an announcement regarding their joint venture to set up the China Europe International Exchange. The new exchange grants investors access to the Chinese capital market during European and US trading times and is based in Frankfurt. The German-Chinese exchange operates using the established and globally available infrastructure provided by the Deutsche Börse Group. The three joint venture partners specifically selected Frankfurt as the financial platform from which to offer their service in a European regulatory environment and in the European and American time zones. The money flows resulting from securities settlement are to be channelled through the RMB clearing infrastructure provided in Frankfurt.