HKEX Chief Executive Charles Li said today that the launch of Bond Connect has led RMB internationalisation to the third phase, where international financial institutions can begin to use RMB to manage their balance sheet.
Li gave opening remarks this morning at HKEX’s 5th Annual RMB Fixed Income and Currency Conference, brings market participants, regulators, service providers and corporates together to discuss the latest trends in the FIC market and how to push RMB internationalisation forward. Around 700 people attended the conference.
Li said the RMB has already made great strides, and will eventually become the second most-used currency in the world alongside the US dollar. For the RMB to become a true global currency, Li said there are three key components which have to be addressed: liquidity, products and users. He said cross-border trading in RMB through Stock Connect has been a key catalyst to increasing use as RMB as an investment currency, but more work must be done.
There are also three key stages along the path to internationalisation, according to Li. In the early phase, the RMB was mainly accepted as a trade settlement currency and people were concerned about the currency rate. Then, investors started to use RMB for RMB-denominated investments in the second phase. Stock Connect has facilitated that. The launch of Bond Connect has led to the third phase, where international financial institutions can begin to use RMB to manage their balance sheet. We are early in the third phase, so more work needs to be done, he noted.
Bond Connect, the ground-breaking programme that provides Hong Kong and international investors with convenient access to China’s interbank bond market, has also been picking up steam. By the end of May this year, 315 overseas institutional investors had entered the onshore bond market through Bond Connect, while 310 new bonds were issued through the scheme.
Turnover is rising as well. The average daily volume of Bond Connect reached RMB3.1 billion in April and RMB3.02 billion in May 2018, an increase of 17 per cent and 13 per cent from the first quarter of 2018. Foreign holdings in China’s interbank bond market reached RMB1.375 trillion, an increase of 63 per cent since the launch of Bond Connect.