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Traders in Hong Kong will get their first chance to trade renminbi futures on September 17, as the Chinese government continues its drive to internationalise the People’s currency.
The listed contracts will be quoted against the dollar and margined in renminbi, with trading and settlement fees also charged in renminbi, Hong Kong Exchanges and Clearing said yesterday. The margin requirement is yet to be finalised, but is expected to be 1%. Market makers will be announced before the launch date. The contracts will be available in lots of $100,000 and will initially comprise the front four months (October to January) and then March, June and September 2013.
"These new futures are part of our strategy to offer a wide range of renminbi-related products and expand beyond equities and equity-related derivatives into fixed income, currencies and commodities," said HKEx chief executive Charles Li. “In addition, they will help us support renminbi internationalisation and Hong Kong's further development as an offshore renminbi centre."
Investors have been able to trade over-the-counter renminbi futures that are delivered in dollars for the past few years, but this is the first time they will be able to trade listed contracts and receive renminbi.
Even so, the new market is expected to be limited in size. With just seven contracts on offer and a maximum one-year maturity, companies looking to hedge their exposure may still find better options in the offshore market.
Indeed, HKEx seems to be setting expectations low, preferring to emphasise the opportunity for growth in the long run.
"Although we do not have any volume or open interest targets, we see great long-term potential in renminbi currency futures," said Calvin Tai, the exchange’s head of trading.
It makes sense to look beyond the immediate future. The offshore renminbi market is still relatively small and investors are less excited about the prospects for appreciation given the slowdown in global growth and the extraordinary expansion of the central bank’s balance sheet since the start of the crisis.
Despite the change in sentiment, the project to internationalise the renminbi continues regardless. China has made progress in relaxing foreign exchange restrictions for trade settlement and the development of the dim sum bond market has given offshore investors an alternative to deposits.
The goal of becoming a global reserve currency is still a long way off. Trade in renminbi accounts for less than 1% of global foreign exchange transactions, according to a research note published by ABN Amro this week. The US dollar, on the other hand, accounts for close to two-thirds of all international reserves and comprises more than 80% of foreign exchange turnover worldwide.
An academic study published this year ranked the openness of China’s capital account at 110th out of 165, which suggests it still has a lot of internationalising to do before it rivals the dollar, or even the yen, as a significant component of international reserves.
However, China’s share in international trade will be the ultimate driver of adoption of the renminbi. Its share of global exports and imports is more than double Japan’s and on par with the US, yet most of that trade just ends up adding to China’s vast horde of dollars, which are of limited immediate use in its battle to stimulate the domestic economy.
That said, the launch of renminbi futures in Hong Kong is not just about internationalising the currency. It also represents a step towards moving derivatives markets on to exchanges, which is part of a series of post-crisis reforms aimed at creating a more stable financial system.
HKEx has been busy briefing market practitioners and investment professionals on how the futures contracts will work since it won approval from the Securities and Futures Commission in May.
