Friday, January 7, 2011

Direct RMB Trading in Russia

China has taken an important and symbolic step in renminbi RMB (also called CNY, or simply Yuan) internationalization, a move that in the long term can make the USD less relevant to businesses between the two countries.

Starting from 15 December 2010, Moscow Currency Exchange has opened direct trading between the Renminbi (RMB) and the Russian Ruble (RUB). The Exchange marked 4.6350 as the first deal of RMB/RUB exchange rate on the day.

It is the first direct RMB trading in an overseas exchange outside mainland China and Hong Kong.

Initially the direct RMB trading does have some limitations. In fact, the RMB/RUB session lasts only for one hour each morning. It is also just tailored to serve Russian banks with clients doing businesses in China, rather than speculators hoping to build up RMB portfolio and anticipating its value will appreciate. (Source: Moscow Interbank Currency Exchange, or simply called Micex)

This trading session in Moscow is reciprocal, as China in November 2010 already opened an exchange for RMB/RUB in Shanghai.

China and Russia are two fast-growing countries in the well-known BRIC economies. Russia is the largest energy exporting country in the world, while China is now a big consumer as the global second largest economy. In old days transactions between the two countries could only be settled in USD. Now companies in the two countries can do businesses without the need for USD as a common currency, and hence can save all the exchange costs to USD from Ruble (RUB) or Renminbi (RMB).

If the market continues to develop, it not only can promote cross-border RMB businesses but can also cut the USD out of a portion of Russian and Chinese trades.

We expect more and more countries will move in the same direction, and the trend of RMB trading outside China will eventually diminish global USD demands.

China already announced in June 2009 that Shanghai will be built as an international financial centre by the year 2020, we therefore expect RMB will be directly convertible worldwide within a 10-year time horizon because it is an essential step for switching Shanghai from a domestic financial centre to an international one.

That said, when you look back, it can be more than regrettable if your investment combination really keeps no RMB in these 10 years.

In 2010, renminbi RMB gained +3.5% YoY to the level of 6.59 against USD at the year end close. It has also been a yearly record high since the mid-2005 China exchange rate reform.


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