Offshore renminbi market.

• Main Authors: Peh, Derrick Chin Kiat., Heng, Zoey Peishan., Sei, Sin Yee.
• Other Authors: Gunter Dufey
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Business::Finance::Capital market
• Online Access: http://hdl.handle.net/10356/48100
• Institution: Nanyang Technological University

The offshore “currency” (deposit) market is a relatively new phenomenon in international financial markets, having only taken off in the 1960s. It has been one of the fastest growing sectors in international financial services, and has been credited with contributing to the rapid development of global financial trade. Offshore markets have always been associated with fully convertible currencies thus far, but since 2004, a new phenomenon has been observed – the development of an offshore renminbi market, a non-convertible, non-liquid currency. This report seeks to answer several questions with regards to the offshore renminbi market: Why is there an offshore RMB market? How did Hong Kong become an offshore market for the RMB, a non-convertible currency? Who are the participants in the offshore RMB market, and what are their motivations? How is offshore renminbi different from onshore renminbi? What will happen to the offshore RMB market in alternate scenarios? What implications does the offshore RMB market have for the Chinese yuan and what are the implications for the international financial system so far anchored on the USD? To give the reader a better picture of this new development, Chapter 1 of this report explains the characteristics and mechanism of the general ‘Eurocurrency’ market, another name for the offshore market. Subsequently, the later chapters examine the emergence of the offshore renminbi market. Chapter 2 studies the offshore renminbi market from the investors’ point of view, exploring the motivations behind offshore renminbi deposits. Chapter 3 examines the offshore renminbi market from the borrowers’ point of view. An analysis of bond issuers is also presented. Chapter 4 explains offshore clearing of the renminbi, and examines the reasons accounting for a different renminbi foreign exchange rate onshore (CNY) and offshore (CNH). Lastly, Chapter 5 explores the future of the offshore renminbi market and presents various risk factors together with their implications.