Internationalisation of the Renminbi: Measuring Progress

Towards a Global Currency

RMB TrackerJuly 2016 Edition

The authors would like to thank the following for their support in producing this paper:

Julien Martin Head of Fixed Income and Currency Product Development, Hong Kong Exchange

Qingsong Zhang General Manager, Payment and Clearing Department, Bank of China

Sandip Patil Regional Head, Global Liquidity and Investment, Asia Pacific, Treasury and Trade Solutions, Citi Bank

Upadhyay Biswajyoti Managing Director, Regional Head Transaction Banking - Product Management & Client Access, Greater China and North Asia, Standard Chartered Bank

Xin Zhang General Manager, China International Payment Service Corp

SWIFT

Astrid Thorsen

Eric Yang

Laetitia Moncarz

Michael Moon

Nicola Kaur

Pedro Mullor

Sarah L’Ortye

Wim Raymaekers

1 Foreword

2 Executive summary

4 Chinese Yuan back to #6 as world payments currency

7 Three new offshore clearing centres appointed since September 2015

9 RMB Adoption across financial institutions continues to grow

10 US Dollar continues to be the leading currency for cross border payments done with China and Hong Kong

11 Support your RMB strategy with fact-based insights

12 About SWIFT

CONTENTS

Since 2010, SWIFT has actively supported its customers and the financial industry regarding

RMB internationalisation through various publications and reports. The SWIFT RMB Tracker

issued on a monthly basis provides the community with insights into the focal conversation about

China’s Renminbi (RMB) and its growing influence on the world.

With the occasion of the SWIFT Greater China Regional Conference, taking place in Shanghai on

the 21 July 2016, I am delighted to present this special edition of the RMB Tracker that provides

an updated and consolidated overview of the RMB’s rise as an international currency.

This report focuses on 2016 half-year statistics and analysis from SWIFT. It also includes insights

from financial industry experts on the recent evolutions of the RMB and what the future has in

store for the Chinese currency.

Despite a recent slowdown, reflected in the key indicators presented in this report, RMB internationalisation is continuing by

most measures, such as payments, bank adoption and offshore clearing centre growth. The journey towards full

internationalisation of the RMB is a long one, but the creation of new offshore centres around the world combined with the

progress of China’s new Cross Border inter-Bank Payments System (CIPS) will help move the RMB along its path towards

internationalisation. SWIFT is optimistic about the RMB’s journey towards a more international currency. However, the success

of the RMB remains dependent on several key factors, which requires the full attention of the global community.

The following key factors are critical for RMB internationalisation:

Expand the connectedness of RMB

On 30 November 2015, the International Monetary Fund (IMF) included the RMB in the Special Drawing Rights (SDR) basket

along with four other major currencies. Concretely, the central banks will be able to use RMB to diversify their reserves.

However, this inclusion needs to be supported by broader connectivity and progress of RMB internationalisation correlates

with more banks serving their customers in RMB, and through improvements in RMB clearing and settlement financial

infrastructures such as offshore clearing centres and CIPS.

Enhance RMB products and services suite

To support the growth of RMB in a manner that is safe, scalable, reliable, secure and resilient — financial institutions will need

to invest in optimising products and services for their customers. SWIFT’s suite of products and services, such as business

intelligence, messaging conversion and networks, contribute to an essential foundation for growing the global footprint of the RMB.

Ongoing focus on standards and compliance

The march towards a global currency requires ongoing industry focus on efficiency, automation and global message

standardisation. As part of the journey, compliance to local and global regulations is ever more important.

I hope you find this Greater China Regional Conference special edition of the SWIFT RMB Tracker insightful. In terms of

emerging economic opportunities, and despite the recent slowdown, I truly believe the RMB remains the game changer for

many not just for countries with designated offshore RMB centres, but for businesses and consumers around the world.

FOREWORDBy Alain Raes

Chief Executive,

APAC & EMEA, SWIFT

1

SWIFT’s July 2016 RMB Tracker provides a detailed status update on the evolution of RMB in Payments

In SWIFT’s capacity to support its community, many initiatives are taking place to facilitate Renminbi (RMB) transactions

worldwide. SWIFT has been tracking the internationalisation of the RMB since 2010 and produces a public, freely available

monthly tracker on swift.com.

Since 2011, the RMB has steadily progressed along its path to become a global currency in international trade. SWIFT’s

data indicates that many RMB data points continue to progress in areas such as payments, bank adoption and offshore

clearing centre growth.

On 25th March 2016, SWIFT and CIPS signed a memorandum of understanding (MoU) to commence strategic cooperation.

The MoU sets out plans to develop CIPS using SWIFT as a secure and reliable channel to connect CIPS with SWIFT’s global

user community. CIPS went live with pilot banks since October 2015 and it is now starting its phase 2 Development. SWIFT

will continue working with China and the international financial community by providing connectivity, standardisation and other

value added services. This will undoubtedly underpin the ongoing success of RMB internationalisation.

• Representing 40% of all financial institutions exchanging payments with China and Hong Kong

• Up 22% since June 2014

• A further 600 banks use the Chinese currency for payments without a leg with China or Hong Kong

banks use RMB for payments with China and Hong Kong in June 2016

1,247for Asia Pacific intra-regional payments with China & Hong Kong

#2• But the gap between JPY and CNY is minimal

as a World Payments Currency in value

#6• 1.72% of global payments in value — up from #10 and 0.87% in June 2013

• New centres have emerged including Seoul and Canada

• United Kingdom becomes the #1 clearing centre again for RMB after Hong Kong processing 24.4% of RMB payments by value, excluding China and Hong Kong

• The UK is closely followed by Singapore, processing 18.5% excluding China and Hong Kong

• Decrease in most countries except United Kingdom (+7%), South Korea (+16%) and Canada (+124%)

EXECUTIVE SUMMARY

3

This special edition covers in more details the below key highlights based on June 2016 data:

As an important financial infrastructure to support the RMB internationalisation, Cross-border Interbank Payment System (CIPS) offers clearing and settlement services for cross-border trade, investment and financing, and other cross-border RMB business in major time zones. CIPS, like a broad straight highway, provides an efficient, convenient and secure payment channel to further improve the efficiency of the RMB cross-border clearing and settlement process, and therefore promote the RMB internationalisation.

— Xin Zhang General Manager, China International Payment Service Corp

T he collaboration between SWIFT and CIPS enables consistency and standardization towards global standards. The establishment of CIPS will help improve the efficiency of RMB clearing as the currency moves forward on its internationalisation journey. For corporate treasurers, we anticipate that CIPS would enable efficiency in settling their global trade and treasury transactions using RMB. Specifically, with the collaboration with SWIFT and RMB banks, corporate treasurers can look to gain benefits from the use of SWIFT standards for communication and global standardisation.

— Sandip Patil RegionalHead,GlobalLiquidityandInvestment,AsiaPacific,TreasuryandTradeSolutions,Citi

2

• US Dollar is still the primary currency with a weight of 63.6%

currency for cross-border payments done with China and Hong Kong with a share of 12.7%

#2

What is CIPS?China International Payment Service Corp. (CIPS) is a clearing institution established within the

territory of the People’s Republic of China, which is approved by People’s Bank of China (PBOC)

and subjected to PBOC’s supervision. CIPS Corp. is responsible for the operations and maintenance

of Cross-border Interbank Payment System (CIPS), including the management of its participants

and business promotions etc.

Construction of the CIPS is carried out in two phases:

• In the first phase, real-time full-amount settlement is adopted to provide clearing and

settlement services for cross-border trade, cross-border investment and financing, and other

cross-border RMB businesses

• In the second phase, a more liquidity-saving hybrid settlement mode will be employed to

increase the efficiency of cross-border and offshore RMB clearing and settlement

In phase two, CIPS is also looking at extending the operating time to cover more time zones, and consistently improving its standards and services portfolio to enable broader participation.

Chinese Yuan back to #6 as world payments currency

54

According to SWIFT June data, Canadian dollar has overtaken the RMB and entered the top five of world payment currencies by value, with a share of 1.96%.

Just three years ago, in June 2013, the RMB was ranked at position #10 with a share of 0.87%, while in June 2016, the RMB had a share of 1.72% in global payments by value. In the last three years, the RMB overtook several currencies, including the SEK, HKD, CHF and CAD, but fell back to position number six in April 2016.

D uring the first half of this year, the

growing pace of RMB cross border

payments has to some extent slowed

down after several years' spectacular

growth, against the backdrop of

eventful international markets and

more responsive RMB exchange rates.

This is arguably a necessary stage of

RMB internationalisation, which helps

setting solid foundation in the long run.

In regards of financial market

infrastructure, Bank of China Hong

Kong was admitted to join the CIPS,

being the first direct participant out

of mainland China, which will further

facilitate the connectivity between

onshore and offshore systems. We are

confident that Hong Kong's place as

a global RMB trading and clearing

hub will be enhanced and all market

participants are certain to benefit.

— Qingsong Zhang

General Manager,

Clearing Dept, Bank of China

2013 2014 2015 2016 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06

CNYSEKHKD

CHFCADAUD

JPY

#7 #5 #6

Source: SWIFT Watch

RMB overtook 6 currencies during the last 3 yearsPayments sent and received by value, excluding central banks.

In April and May 2016 the RMB was

trailing the CAD with a minor difference

of 0.01% but the gap increased in June

2016 likely due to the seasonal effect

of the Dragon Boat holiday in China

and Hong Kong. The RMB reached its

record high share of 2.79% in August

Recent SWIFT data also shows that the

Japanese yen overtook the Chinese

currency as the most active currency

used by Asia Pacific for payments with

China and Hong Kong. Compared to

last year, the RMB moved from position

one to number two, but the gap with

2015 but since then its share has

been decreasing. The offshore RMB

usage has most likely been negatively

impacted by the volatility in the

Chinese market and the slow-down

of Chinese economy.

the Japanese yen is minimal.

Overall, global RMB payments slightly

increased by value by 0.19% in

June 2016 compared to May 2016,

while payments across all currencies

increased by value by 10.33%.

#10

Three new Offshore Clearing Centres Appointed since September 2015

76

When it comes to handling global

payments in RMB, Hong Kong stays

the world’s largest offshore RMB

centre, processing 71% of RMB

payments. Although more than

110 countries made RMB payments

in June 2016, more than 90% is

concentrated in 10 countries; United

Kingdom does 24.4% of all offshore

RMB payments and has taken over

Singapore as number one offshore

RMB clearing centre compared to

last year, excluding Hong Kong.

London and Singapore still play a

key role in driving RMB adoption

outside of Hong Kong but in the last

years, the emergence of other RMB

clearing centres worldwide, also

facilitates its usage.

Since September 2015, three new

clearing centres have been selected

by the People’s Bank of China (PBOC),

including Zambia, Argentina and

Switzerland, leading to a total of 19

RMB clearing centres, spread across

each continent. However, over the last

six months, SWIFT data shows RMB

adoption in most countries where

an RMB clearing centre has been

appointed is flat or declining, as is

the case with Singapore (-37%) and

Malaysia (-63%) showing the largest

decrease. On the flip side, the United

Kingdom (+7%), South Korea (+16%)

and Canada (+124%) are showing a

significant increase compared to the

same period last year.

Today, the PBOC has not appointed an

RMB clearing centre in the United States

and interestingly, SWIFT data shows

that RMB adoption in the United States

is marginal. However, SWIFT expects

payments in RMB between China/Hong

Kong and the United States to evolve

following the creation of the U.S. RMB

Trading and Clearing Working Group,

which has a directive to promote and

develop trading, clearing and settlement

of the RMB in the United States.

RMB as World Payments CurrencyCustomer initiated and institutional payments. Messages exchanged on SWIFT. Based on Value.

Jan - June 2016 Jan - June 2015

#1#2JPY

#2#1CNY

#3#3HKD

#4#4USD

#5#5AUD

Source: SWIFT Watch

Source: SWIFT Watch

Currency weight evolution within Asia Pacific for payments within China and Hong Kong

Payments sent and received by value, excluding China and Hong Kong

USD #1 38.75%EUR #2 33.52%GBP #3 9.37%JPY #4 2.50%CAD #5 1.80%AUD #6 1.75%CNY #7 1.39%CHF #8 1.38%HKD #9 1.09%THB #10 0.98%SEK #11 0.97%SGD #12 0.88%NOK #13 0.80%DKK #14 0.60%PLN #15 0.58%ZAR #16 0.40%RUB #17 0.40%MXN #18 0.39%NZD #19 0.35%TRY #20 0.34%

January 2014 June 2016

USD #1 40.97%EUR #2 30.82%GBP #3 8.73%JPY #4 3.46%CAD #5 1.96%CNY #6 1.72%AUD #7 1.55CHF #8 1.52%HKD #9 1.09%THB #10 1.02%SEK #11 0.96%SGD #12 0.90%NOK #13 0.74%PLN #14 0.53%ZAR #15 0.45%DKK #16 0.40%NZD #17 0.38%MXN #18 0.37%TRY #19 0.33%CLP #20 0.29%

Source: SWIFT Watch

United Kingdom

-37%

+7%

Canada

AustraliaFrance

South Korea

SingaporeTaiwan

-18%

+16%-7% -30%

Luxembourg

-28%

Germany

-5% +124%

Switzerland

-26% -32%

Malaysia

-63%

* Including South Africa, Thailand, Qatar, Zambia, Chile and Argentina

Others*

Jan - Jun 2015 Jan - Jun 2016

Evolution of RMB payments in economies with RMB clearing centresPayments sent and received by value, excluding China and Hong Kong.

Please note, for the purpose of the following chart, Hong Kong has been removed from the list to show at a comparable scale the evolution of the other RMB clearing centres.

Recent SWIFT data shows that 1,247 banks used the RMB for payments with China and Hong Kong, representing 40% of all institutions exchanging payments with China and Hong Kong across all currencies.

RMB Adoption across financial institutions continues to growOfficial RMB Clearing Banks appointed by People’s Bank of ChinaGeographical Location and Timeline

8 9

C hina’s Cross-border Interbank Payments System (CIPS) as a scalable and efficient clearing infrastructure aligning to international payment standards, has truly accelerated the RMB internationalisation journey. SCB is in the first batch of banks as direct participant to CIPS, and we are looking forward to phase 2 implementation through enhanced liquidity efficiency and allowing overseas participating banks to link directly.

— Biswajyoti Upadhyay Managing Director, Regional Head Transaction Banking - Product Management & Client Access, Greater China and North Asia, Standard Chartered Bank

SEOUL,JUL 2014

SANTIAGO,MAY 2015

TORONTO,NOV 2014

LONDON,JUN 2014

PARIS,SEP 2014

DOHA,NOV 2014

KUALA LUMPUR,JAN 2015

BANGKOK,JAN 2015

SYDNEY,FEB 2015

TAIPEI,DEC 2012

MACAU,SEP 2004

HONG KONG,2003

BUENOS AIRES,SEP 2015

JOHANNESBURG,JUL 2015

SINGAPORE,FEB 2013

LUSAKA,SEP 2015

FRANKFURT,JUN 2014

LUXEMBOURG,SEP 2014

ZURICH,OCT 2015

TORONTO

DOHASEOUL

LUSAKALUXEMBOURG

PARIS SANTIAGO

ZURICHJOHANNESBURGSYDNEY

BANGKOK

KUALA LUMPUR

HONG KONG

FRANKFURT

LONDON

BUENOS AIRES

20132012 2015201420042003

SINGAPORE

MACAU TAIPEI

SEP DEC FEB JUN SEPJUL NOV JAN MAYFEB SEPJUL OCT

Asia Pacific leads the way with 43%

adoption, followed by the Americas at

42% adoption rate. Europe falls behind

the Americas at 37% and the Middle

East and Africa is at 34%. The majority

of these institutions are located in Asia-

Pacific (624), followed by Europe (399).

Compared to two years ago, all regions

continue to show a double digit growth.

Number of financial institutions using RMB for paymentsInternational payments sent and received directly with China and Hong Kong.

In June 2016, more than 1,800 financial

institutions made worldwide payments

in RMB, representing a 12% increase

compared to last year. 600 banks use

the Chinese currency for payments

without a leg with China or Hong Kong.

Source: SWIFT Watch

+22%

+23%

+23%

+22%

+16%

Share of RMB users AFRICA–MIDDLE EAST

JUN 2014 JUN 2014 JUN 2014 JUN 2014 JUN 2014

28%

JUN 2016 JUN 2016 JUN 2016 JUN 2016 JUN 2016

34%

81 94

ASIA PACIFIC

37% 43%

513

624

AMERICAS

35% 42%

106130

EUROPE

29% 37%

325399

WORLD

33% 40%

1,025

1,247

RMB is a strategic opportunity for most of our corporate clients. It adds several strategic benefits in managing liquidity and funding efficiently across all global business and hence, reduces risks and costs. We are seeing increasing adoption of RMB in Client’s Pooling and Netting structures globally. However, client needs to be watchful regarding volatility and liquidity for onshore & offshore. For a currency to be used actively by corporations offshore, one clearly needs deep and fungible financial markets behind it. If liquidity is not available on demand, there will only be conservative offerings from the banking partners. The good news is that there is constant experimentation in this space and we continue to see progress with regards to RMB liquidity.

In particular, we still need more depth in the offshore RMB market for it to be meaningful. Lack of reliable intraday liquidity sources brings tremendous volatility as we have seen recently in Hong Kong. This causes negative impact on corporate clients’ aspirations to use Global RMB as a trade or treasury currency. At times, there is a limited supply of intraday RMB liquidity in key offshore centres like Singapore or London. Hong Kong has a good source of RMB liquidity, but from time to time, even the Hong Kong market becomes illiquid or expensive. However, there are good positive efforts including extension of RMB clearing time in Hong Kong or CIPS in China. Corporate clients are slowly building comfort and confidence in these efforts and we see continuously increasing adoption by corporate clients for managing genuine liquidity and funding positions.

— Sandip Patil RegionalHead,GlobalLiquidityandInvestment,AsiaPacific,TreasuryandTradeSolutions,Citi

At a global level, the Chinese currency

continues to be the second most used

currency for cross border payments

done with China and Hong with a weight

of 12.7% when looking at 2016 year-to-

date data. With a share of 63.6%,

the US dollar remains the primary

currency. Compared to last year, we

see that the Chinese currency even lost

some weight (share of 13.6%) so several

years will be required to become a real

alternative to the US dollar.

The top RMB corridors for cross border

payments in June 2016 were

Hong Kong – United Kingdom,

Hong Kong – United States and

Hong Kong – Singapore.

This shows that Hong Kong still remains

the main entry point for most of the RMB

payments. 25.8% of the international

RMB payments are sent between Hong

Kong and the United Kingdom followed

by nearly 10% between Hong Kong and

the United States.

US Dollar continues to be the leading currency for cross border payments done with China and Hong Kong

Top RMB Corridors for Cross Border PaymentsInternational payments by value, June 2016.

Currency usage for cross border payments done with China and Hong Kong

International payments sent and received by value with China and Hong Kong. YTD June 2016.

Source: SWIFT Watch

1110

W e have seen an accelerated

internationalisation of the RMB through

acquisitions, investments and a stronger

pricing power. Among the different

offshore centres, Hong Kong is in a

premier position to offer cross-border

connectivity and product solutions.

— Julien Martin Head of Fixed Income and Currency Product Development, HKEX

Source: SWIFT Watch

USD63.6%CNY

12.7%

HKD7.9%

JPY7.0%

EUR4.2%

OTHERS4.6%

Hong Kong – United Kingdom

25.8%

Hong Kong – United States

9.9%

Hong Kong – Singapore

6.4%

The growing importance of the RMB currency and its role in financial markets is evident.Because of this, financial institutions have already started to build their RMB strategy or are planning to do so in the near future, but need more fact-based information to identify where their organisation stands.

To address these issues, SWIFT Business Intelligence provides a free Monthly RMB Tracker. Furthermore, in order to obtain more granular market information and a competitive framework, SWIFT has developed a comprehensive offering:

Support your RMB strategy with fact-based insights

• At the core of SWIFT Business

Intelligence sits the Watch platform,

a portfolio of online reporting

and analytical tools that give

customers direct and easy access

to business intelligence about their

financial institution and the global

financial industry. For example,

Watch Analytics provides customers

with direct access to business

data of RMB transactions allowing

customers to perform a more

dynamic search and analysis.

• In order to obtain more granular

market information and a competitive

framework, this can be acquired

through its extended RMB Market

Insights analysis report. SWIFT’s

RMB Market Insights report responds

to the needs of SWIFT customers

(both Watch product users and non-

users). With this, financial institutions

can benefit from fact-based

quarterly market analysis using

unique data only available through

SWIFT Business Intelligence.

• Similarly, the customised RMB

analysis leverages SWIFT’s unique

data and provides crucial competitive

and strategic insights to optimise

business operations and support

decision-making.

1112

More than 1,800 Financial Institutions in over 110 countriesare already doing business in the Chinese currency: theRenminbi (RMB). Is yours one of them? Are you looking tounderstand more about RMB internationalisation, or furtherexpand your RMB business?

SWIFT’s RMB Tracker provides a monthly report with aunique set of statistics to help you track and understandhow the RMB is being used across geographies andfinancial sectors. To register for the free RMB Tracker orlearn more about our RMB offering, visit www.swift.com ore-mail swiftforbanks@swift.com.

For further information about SWIFT’s Business Intelligence RMB Consulting Services and the full Business Intelligence portfolio, please visit swift.com or e-mail watch@swift.com

Please visit www.swift.com for

more information about RMB

Internationalisation or join our new

‘Business Intelligence Transaction

Banking’ LinkedIn group.

About SWIFT

SWIFT is a member-owned cooperative

that provides the communications

platform, products and services to

connect more than 10,800 banking

organisations, securities institutions

and corporate customers in over

200 countries and territories. SWIFT

enables its users to exchange

automated, standardised financial

information securely and reliably,

thereby lowering costs, reducing

operational risk and eliminating

operational inefficiencies. SWIFT also

brings the financial community together

to work collaboratively to shape market

practice, define standards and debate

issues of mutual interest.

Disclaimer

This report is provided for information

only. If the customer or any third

party decides to take any course of

action or omission based on this report

and/or any conclusion contained

therein, they shall do so at their own

risk and SWIFT shall not be liable for

any loss or damage, arising from

their acts or omissions based on this

report and/or any recommendations

contained therein.

About SWIFT and

RMB Internationalisation

Since 2010, SWIFT has actively

supported its customers and the

financial industry regarding RMB

internationalisation through various

publications and reports.

Through its Business Intelligence

Solutions team, SWIFT publishes key

adoption statistics in the RMB Tracker,

insights on the implications of RMB

internationalisation, perspectives on

RMB clearing and offshore clearing

guidelines, supports bank’s

commercial RMB product launches

and provides in-depth analysis and

business intelligence, as well as

engaging with offshore clearing

centres and the Chinese financial

community to support the further

internationalisation of the RMB.

The SWIFT network fully supports

global RMB transactions, and its

messaging services enable Chinese

character transportation via Chinese

Commercial Code (CCC) in FIN

or via Chinese characters in

MX (ISO 20022 messages). It offers

a suite of dedicated RMB business

intelligence products and services

to support financial institutions

and corporates. In addition, SWIFT

collaborates with the community to

publish the Offshore and Cross-Border

RMB Best Practice Guidelines,

which facilitate standardised RMB

back office operations.

Ready for RMB?

For more information, visit www.swift.com

Media contacts:

Cognito

swift@cognitomedia.com

+44 (0)20 7426 9400

@swiftcommunity LinkedIn: SWIFT SWIFTFORBANKS@swift.com