Direct Trading of Singapore China Currency Pair

China continues on its way to internationalize its currency. The latest step is direct trading of the Singapore China currency pair. As reported in Channel NewsAsia Singapore and China are to start direct currency trading.

China will allow direct trading between its currency and the Singapore dollar from Tuesday (Oct 28), making it easier for companies here to do business with their Chinese counterparts.

The Sing dollar will be added to the China Foreign Exchange Trade System (CFETS) platform, which currently offers transactions between the yuan and 10 foreign currencies. The announcement came on Monday (Oct 27), after an agreement at the Joint Council for Bilateral Cooperation (JCBC) in Suzhou, co-chaired by Deputy Prime Minister Teo Chee Hean and Chinese Vice Premier Zhang Gaoli.

Previously, companies that wanted to convert a large amount of Sing dollars to renminbi (RMB) or vice versa had to do so via an intermediate currency such as the US dollar.

“This will lower foreign exchange transaction costs and encourage greater use of the two currencies in cross-border trade and investments,” the Monetary Authority of Singapore (MAS) said in a news release on Monday.

As the article notes, a goal of doing this is to facilitate direct conversion of Singapore dollars for Chinese Renminbi and vice versa. The direct trading of the Singapore China currency pair is just the latest step in China’s goal of internationalizing its currency.

Yuan Euro Trading and More

According to a recent article in Bloomberg, direct trading with the Euro was the sixth major currency with which the Renminbi trades directly.

China will start direct trading between the yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency.

The move will lower transaction costs and so make yuan and euros more attractive to conduct bilateral trade and investment, the People’s Bank of China said today in a statement on its website. HSBC Holdings Plc said separately it has received regulatory approval to be one of the first market makers when trading begins in China’s domestic market.

The euro will become the sixth major currency to be exchangeable directly for yuan in Shanghai, joining the U.S., Australian and New Zealand dollars, the British pound and the Japanese yen. The yuan ranked seventh for global payments in August and more than one-third of the world’s financial institutions have used it for transfers to China and Hong Kong, the Society for Worldwide International Financial Telecommunications said last week.

Now that the Singapore dollar has been added the list of currencies that trade directly against that of China are the following:

USD United States Dollar
EUR Euro
GBP British Pound
YEN Japanese Yen
AUD Australian Dollar
NZD New Zealand Dollar
SGD Singapore Dollar
KRW South Korean Won

Market Value of the Renminbi

A major issue in dealing with China is the lack of transparency of their economy and their continuing efforts to control their currency. The strength of the Chinese currency may be one casualty of direct trading with a broader set of choices. According to an article in Forbes we should not bet that Chinese currency strength will not last despite recent promising economic data.

The iShares FTSE China (FXI) exchange traded fund got a hand from decent Chinese economic data on Monday, in a week that promises to be full of ups and downs.  FXI rose 1.6% within the first hour of trade. But this week’s data dump out of Beijing will likely be volatile. Over the past year, economic data out of China has been a story of one step forward, one step back.

The issue for China as it attempts to internationalize its currency is that it will need to loosen up its control of currency, economy and social structures in order to truly function across all markets as an international currency. That though probably scares the folks in Beijing.