A new renminbi (RMB) clearing bank in Johannesburg
is set to reduce trading costs and boost PRC investment across
South Africa is the continent’s first
country to sign such a memorandum of understanding (MoU) with
the Chinese government. The MoU permits the Bank of
China’s Johannesburg branch to clear payments made
in the world’s fifth-largest currency by
China is South Africa’s largest trade
partner, but conducting transactions in rand or dollars to
later be converted to RMB is costly.
In June, one month before the bank’s
opening, nearly one in three payments between the trade
partners were settled in RMB. In 2014, that figure was 11%.
While many South African corporates are already
comfortable with the currency, a local branch is likely to
further boost its use.
"What Chinese authorities have tried to achieve is
familiarity," said Andrew Malcolm, head of capital markets Asia
at Linklaters. "With a local clearing bank,
it’s reassuring for corporate treasurers to deal
with their usual bank contact as an intermediary."
- Last month the South African and PRC governments
signed a MoU permitting the Bank of China’s
Johannesburg branch to clear payments settled in
- China is already South Africa’s
largest trading partner and this move is set to boost
RMB-denominated transactions across the
- This week the IMF delayed its decision on whether
to add RMB to its Special Drawing Rights (SDR) basket. It
said RMB still lags behind the four major freely usable
currencies already in the SDR.
This does not, however create a clearing hub, as
can be found in Hong Kong, Canada and the UK. Malcolm explained
that although the terms are used loosely, the Johannesburg
bank’s establishment was driven by trade
Hubs on the other hand tend to be more strategic
locations that provide exposure to the global capital markets.
"The two do overlap and merge very quickly, though," he
Clearing hubs are also often granted an allocation
of Renminbi Qualified Foreign Institutional Investor (RQFII)
allowance, facilitating investment in onshore Chinese
businesses. South Africa has not been granted an RQFII
allowance, though it has not been ruled out by local
Market commentators are optimistic about the
currency’s future in Africa. "It’s
always exciting from an Asia perspective when a jurisdiction
opens a clearing bank," said Malcolm.
"Now that Johannesburg has joined,
we’d certainly look towards further development of
financial products being issued from there," he added.
Dawid de Villiers, partner at Webber Wentzel in Johannesburg, said the benefits
of the clearing bank will stretch further than RMB-denominated
deals. "Parties will also potentially be able to hedge their
exposures to the currency, by executing hedging instruments
denominated in RMB," he added.
Now that Johannesburg has
joined, we’d certainly look towards
further development of financial products being issued
But while the response on the ground has been
overwhelmingly positive, Francisco Khoza, partner at Bowman Gilfillan in Johannesburg, views the
currency’s growth in South Africa more
"The bigger transactions are coming from the UK and
America – I would be surprised if they quickly switch
from using dollar to RMB," he said.
Lawyers have been urged to closely review South
Africa’s standard lending and derivatives
documentation, and how it accommodates RMB, ahead of any
Chinese firms are already major investors in
Africa. In 2014 Chinese Premier Le Keqiang said the country would have achieved $400 billion
in trade volumes and $100 billion in direct investment across
the continent by 2020.
"This will allow the BRICS nations to come together
more closely economically," said de Villiers. "Not only that,
but South Africa can serve as a gateway to trade between Africa
as a continent and the PRC."
On Monday the IMF issued a report that addressed the
possible addition of RMB to its Special Drawing Rights basket
of currencies. Its final decision could be announced as
late as September 2016.
If RMB was included in the SDR, it could prompt the sale of a further $100 billion in
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