The Daily Update - Renminbi exposure - without the intermediary dollar

So far this year the offshore Chinese renminbi has appreciated just under 3% in spot terms against the dollar (3.5% total return); despite sceptics’ calls for a ‘devaluation of the currency in order for the country’s exports to remain competitive’. Although the dollar has remained on the back-foot this year, the RMB continues to trade stronger than its CFETS benchmark; which includes 24 currencies, expanded from 13 currencies in 2016. Aside from the dollar, there are a couple other factors holding the RMB at current strong (but still undervalued) levels, these include: China’s strong economic fundamentals, continued evolution of the capital flow regulation, tightly managed monetary policy and the increased internationalisation of the currency.

In terms of internationalisation, we heard that Namibia (better known as Nambia to Mr. Trump) started trading RMB nationwide, with Bank Windhoek, for example, offering the Chinese currency at 0% commission against the Namibian dollar. This follows the announcement from the Kenya Bankers Association (KBA) that the country's banks are increasingly trading the RMB against the local Kenyan shilling, in order to “enhance revenues”. Growing commercial links were also highlighted as the reason for increased RMB demand. KBA’s CEO, Habil Olaka, also noted that China’s rapid economic grow over the last three decades has seen the RMB’s prominence growth globally and the evergrowing Sino-Kenyan ties have seen the RMB emerge as the underlying currency for bilateral trade. The conversion of African local currencies straight into RMB will, therefore, eliminate the need for the intermediary currencies, namely the US dollar.

With an increasing number of global central banks also holding the renminbi within their reserves (buying RMB using USD holdings), it is clear to us that having exposure to the renminbi is important for any investor, especially as the importance of the RMB within the global financial system increases.

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