US and China held the eighth Strategic & Economic Dialogue (S&ED) on 6-7 June. In the run up to this meeting, indications were already present that both sides have wanted to push the case to establish RMB trading and clearing in the US. At the meeting both governments agreed to greater financial sector cooperation. Notably, there will be a policy framework for the private sector to enhance RMB trading and clearing in the US. Enabling RMB clearing in the US will lower transaction costs for US companies and enhance the competitiveness of US financial institutions.
US and China share significant real economic ties in merchandise trade and direct investment flows. The US is already conducting a lot of RMB denominated FX transactions and now with both governments committed to further collaboration, the RMB business can develop quickly in the US, especially as China continues to liberalize its capital account.
Vice-governor Yi Gang of the People's Bank of China announced that China will grant RMB250bn of RQFII quota to the US. This is the largest quota China has granted to any economy, apart from Hong Kong. RMB clearing banks – one Chinese bank and one US bank – will be set up in the US in due course. An USD-RMB swap line between the Federal Reserve and the PBoC is also expected to be shortly announced.
China reiterated its commitment to FX reforms (and to improve economic data and transparency) and the US noted China's improving communications on its FX policy. Both sides will continue with the Bilateral Investment Treaty (BIT) negotiations. RMB internationalization is an additional incentive for the Chinese authorities to stay on the path of financial and FX reforms. Furthermore, with the Fed likely to move slower on raising rates, there is more scope for the RMB exchange rate to become more market determined.
The material has been provided by InstaForex Company – www.instaforex.com