The introduction of the offshore Renminbi (CNH) was a major step towards the internationalization of the Chinese currency, and put it on track to become one of the world’s reserve currencies. There has been strong and consistent growth in the CNH market throughout the internationalization process.
Contributing factors:
1. Balance of payments and foreign exchange reserves
2. Inflation
3. Interest rate policy
4. Capital flow in the capital market
5. Political situation
6. Import and Export value
7. Trade freedom
8. Productivity and consumption
9. Economic growth
Advantages:
1. Increased market transparency
Electronic central limit order book provides transparent price discovery
Fulfils best execution requirements and reduces search costs for all participants.
2. Enhanced capital efficiency
Maximize capital efficiency through the ability to manage exposures across multiple asset classes within the same clearing house
Benefit from unique margin offsets offered between correlated asset classes such as equity index futures and FX futures
3. Globally recognized CCP
Central clearing mitigates counterparty risk for FX transactions, with a wide range of acceptable margin collateral
Asia’s firs Derivatives Clearing Organization (DOC) authorized by U.S. CFTC
4. Innovative product design
Combination of large and small contract size facilitate precise hedging and low-cost execution for large trade size.
Cash settlement mechanism eliminates risks associated with gross settlement.
