SINGAPORE and China will introduce direct trading between their currencies, helping the city-state compete with Hong Kong and London as an offshore yuan hub.
The two nations also agreed on a 50 billion yuan (RM26 billion) quota for financial institutions in Singapore to invest in China's domestic securities under the Renminbi Qualified Foreign Institutional Investor (RQFII) programe, the Monetary Authority of Singapore said yesterday.
The Southeast Asian nation will be one of several locations where Chinese institutional investors will be able to buy securities overseas with yuan under the new RQFII programme, according to the statement.
"The ongoing internationalisation of the yuan continues to accelerate," said Loh Boon Chye, Singapore-based deputy president for Asia Pacific at Bank of America Merrill Lynch.
"Today's announcement is the next stage in Singapore's efforts to play a prominent role in the long-term development of this market."
Loh is also the chairman of the capital markets, forex and derivatives working group assisting the monetary authority.
The announcement comes a week after China approved direct trading between the yuan and the British pound, helping establish London as the European hub for its currency.
China is seeking a greater role for the yuan in global trade and investment, and has allowed the currency to trade offshore in Hong Kong since 2010. The city holds the world's largest offshore yuan savings pool and handles more than 80 per cent of trade that's denominated in yuan.
China started the RQFII programme in 2011 in Hong Kong, allowing investors holdings the currency offshore to buy domestic bonds, stocks and money-market instruments.
Regulators said in July they would expand it beyond Hong Kong and Taiwan to the UK and Singapore. London won an 80 billion yuan RQFII quota last week, while the pound will join the greenback, Japanese yen and Australia's dollar as a major currency that can be exchanged directly for yuan.
The People's Bank of China said in January that it has started preparations for the so-called QDII2, which will enable individuals to invest in overseas capital markets.
The QDII programme, which began in 2006, only lets investors buy securities outside of the country through asset managers and funds, and is denominated in foreign currency.
"The high profile announcement of the RQDII scheme distinguishes Singapore from other recent deals," Australia & New Zealand Banking Group Ltd economists led by Liu Li-Gang wrote in a note yesterday.
"It will allow Singapore to capture the outbound flow of Chinese wealth." Bloomberg