The Daily Update - Renminbi-denominated crude futures... tradeable soon

Last week we heard that as of March, 26 China - the world's largest importer of oil (the US was dethroned last year) - is set to list local-currency crude futures on the Shanghai Exchange. In a move to create its own crude benchmark, China’s securities regulator (CSRC) announced that international investors will be able to access oil futures priced in renminbi (RMB) in just over a month. Importantly, aside from further afield foreign participation, futures traded through the exchange could envelop the whole Asia region, which consumes the largest amount of oil.

As the Shanghai International Energy Exchange (INE) is registered in Shanghai's free trade zone, international investors will be able to trade oil futures contracts without the need for offshore operations. Despite the ease of access to the country's domestic commodity market, it may take some time for international investors to embrace the idea of trading RMB-denominated crude futures; which have always been priced in dollars. Having said that though, some market players have already earmarked the RMB futures contacts as potential hedge and arbitrage trades.

With a share of the trillions of dollars traded through these instruments globally, this move by China could in the future call to question the dollar’s reign over crude pricing. The rise of the ‘petro-yuan’ could therefore be of interest to the longer-term investors. And the renminbi currency is expected to be more widely held, especially as the CSRC mentioned that the next step would be to open an iron-ore futures trading platform to international investors.

It’s quite clear to us that having exposure to the renminbi, for any investor, should be a consideration; especially as the internationalisation of the currency marches on.

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