China’s recent moves to devalue its currency have dried up liquidity in the offshore renminbi pool, stunting the development of the business, China Construction Bank (Asia) Ltd. president Mao Yumin said.
The room for arbitrage between the onshore and offshore yuan interest rates has disappeared after the People’s Bank of China announced a series of cuts to the benchmarket interest rate, Mao told the Hong Kong Economic Journal.
As a result, the demand for yuan loans overseas while seeking loan guarantees on the mainland is expected to decrease, he said.
Mao urged central bank to introduce measures to boost renminbi liquidity offshore.
His call came at a time when more channels are opening up for investment in China’s capital markets.
The Shanghai-Hong Kong Stock Connect, the plan to launch its Shenzhen equivalent, and the cross-border mutual recognition of funds are taking away liquidity from the offshore yuan market.
Hong Kong’s renminbi pool amounted to about 1.1 trillion yuan (US$171.57 billion) as of the end of last year, and local banks hold approximately 12 billion yuan of highly liquid bonds.
Globally, the combined amount of renminbi offshore is only about 2 trillion yuan, which is too little compared with international currencies.
As such, the central bank should step up the pace of increasing the offshore renminbi pool, Mao said.
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