CME Group, the world’s largest futures exchange, will allow international investors to use the Chinese currency as collateral for trading in all its futures products from January 2012.
The move, announced on Monday, means investors holding renminbi deposits in Hong Kong or other financial centres outside mainland China can use the cash to bet on markets including metals, grains and energy.
“It has symbolic significance that the best-known futures exchange in the west has put a stamp of legitimacy on the Chinese currency by accepting it as collateral,” said Dariusz Kowalczyk, Hong Kong-based strategist at Crédit Agricole.
However he added that CME’s move was unlikely to have any immediate market impact.
The exchange said it would cap the amount of renminbi it accepts at $100m, a relatively small figure that reflects the fact that the offshore renminbi is only a few years old and is less liquid than most major currencies.
While the renminbi can be used for financial transactions outside the Chinese mainland with few restrictions, Beijing retains substantial controls that prevent the currency from crossing China’s borders. However, Beijing has been slowly relaxing some of those controls as it promotes the renminbi as a global alternative to the US dollar.
US-based CME already accepts a wide range of collateral for deposit into trading accounts, including cash from most of the world’s developed markets, as well as gold, asset-backed securities and agency bonds.
The renminbi is not the first emerging market currency to be accepted as collateral: traders can also use the Mexican peso and the Turkish lira.
Like other exchanges, CME said it was planning to expand further the range of currencies and assets it accepts as collateral.
HSBC will serve as CME’s sole clearing custodian in Asia, the exchange said. Under the arrangement, HSBC Hong Kong will hold renminbi deposits from CME clients and allow the use of those deposits as collateral.
According to the Hong Kong Monetary Authority, renminbi deposits in Hong Kong totalled Rmb618.5bn ($97bn) at the end of October, down 0.6 per cent from September but still triple the amount a year ago.
CME, which operates the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange, is one of hundreds of global companies seeking to take advantage of greater use of the renminbi outside China’s borders.
So far this year, companies including Unilever and Caterpillar have issued the equivalent of $13.4bn in renminbi-denominated debt, known as “dim sum” bonds, though issuance has declined in recent months as investor appetite has cooled.
“We’re very seriously growing our presence in Asia and one of the things we want to do is ensure that the products and services that we’re offering here have more of a local applicability,” said Jeremy Hughes, a CME spokesman. “We’re very aware that the vast majority of our products are still US dollar products.”
CME already offers futures that track the value of the renminbi against the US dollar, however these are settled in dollars rather than the Chinese currency and have seen low trading volumes since their launch in 2006.
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