Major lenders prepare for yuan internationalization

A worker at the Industrial and Commercial Bank of China counts banknotes at a branch in Huaibei, Anhui province, on Dec 1, 2015. (Photo by Xie Zhengyi/For China Daily)

The inclusion of the yuan in the Special Drawing Rights basket of the International Monetary Fund will bring great business opportunities to commercial banks with an integrated platform serving clients onshore and offshore.

The holders and users of SDR will be inevitably exposed to the yuan as a result of its inclusion in the currency basket, said Chen Bing, head of BNP Paribas renminbi competence.

"Our renminbi business has been evolving through different stages of renminbi internationalization. SDR inclusion adds another dimension－an immediate business impact is the increasing demand for risk management," he said.

Such currency and interest rate hedging needs are expected to continue growing as corporations, financial institutions and individuals, both domestic and international, are more exposed to Chinese markets and the yuan, he added.

European central banks, which have SDR holdings and loans, came to BNP Paribas asking how they will be able to proactively manage the currency and interest rate exposure with the yuan being accepted as a global reserve currency.

Even before the IMF's decision, global central banks have already been investing in the yuan.

According to an IMF survey conducted for the SDR review, 38 out of 130 central banks held a combined total of SDR 51 billion of renminbi assets ($75 billion) as of the end of 2014, comprising 1.1 percent of total official reserve assets at that time. Official holdings of the yuan are very likely to rise over time, given China's growing economic clout and influence, said HSBC Holdings Plc in a report in September.

Effective from Oct 1, not only the central banks but also supranational organizations such as the World Bank and some corporates have potential needs to manage their currency and interest rate exposure.

As a global bank serving a broad client base both in China and across the world, BNP Paribas developed and provided products dealing with foreign exchange and interest rate exposure to the clients before the SDR inclusion.

"BNP Paribas is deeply committed to serving the China market and developing our RMB business, such as SDR hedging products," Chen said.

He noted that assisting offshore participants to access the China interbank bond market, panda bonds and green bonds are the businesses that BNP Paribas has been actively engaging in by leveraging its truly integrated platform with strong local knowledge and global expertise.