Abu Dhabi a ‘natural choice’ for Middle East yuan clearance centre
Abu Dhabi is the “obvious” location to develop a Middle East clearing centre for the Chinese currency, says the managing director of a leading securities brokerage in the capital.
Philippe Ghanem, the managing director and vice chairman of ADS Securities, was speaking as competition hots up among global financial centres to grab a slice of the growing yuan offshore trading market.
“The obvious place to develop a Middle East hub would be in Abu Dhabi as part of the Abu Dhabi Global Market [ADGM],” he said. “The ADGM is the only specialist market-making and price-producing financial centre. It has the necessary financial infrastructure with the necessary laws covering clearing and settlement which would allow it to host a renminbi [the yuan’s other name] global clearing house.”
Since the global financial crisis of 2008-09, China has accelerated its efforts to open up international trading of its currency as it seeks to deepen investment and trade channels.
To date, Hong Kong has been the biggest beneficiary of that drive, handling an estimated US$12 billion to $13bn in currency trading daily. London clears about $5bn a day. The UK capital this week reinforced its position as the latest financial centre to capture a greater portion of yuan trade when Standard Chartered, the UK bank, said it would start clearing services in the capital in cooperation with Agricultural Bank of China, helping banks and companies deal in the yuan.
The UAE has yet to gain a serious foothold in the currency’s liberalisation drive. A US$5.5 billion currency swap agreement signed with China in January last year has yet to be activated.
Still, Mr Ghanem said with the development of clearing centres in Asia and Europe already under way, the next phase of yuan internationalisation would be likely to focus on other parts of the world. That could mean a need for trading centres covering the Middle East and Africa and the Americas.
“If a centre is established in Abu Dhabi, along with the other main markets, China would be able to increase its role as a global trade hub, developing short, medium and long term trade contracts,” he said.
The stability, regulation and investment potential Abu Dhabi offers, with the connections across the region and into Africa, makes it the “perfect” location, he said.
Dubai has also sought to position itself as a regional trading centre for the currency. A growing number of Asian banks setting up at the Dubai International Financial Centre has promoted the free zone to lobby federal officials to speed reforms and help further the UAE’s case as a potential clearing centre.
In response to growing interest in the Chinese currency, ADS announced last month it had started trading the yuan against the US dollar.
In a sign of the yuan’s growing profile, data released this week from the Society for Worldwide Interbank Financial Telecommunication (Swift), showed the currency had overtaken the euro to become the second-most used currency in global trade finance this year.
China, Hong Kong, Singapore, Germany and Australia were the top users of yuan in trade finance, according to the Belgium-based financial-messaging platform.
Updated: December 4, 2013 04:00 AM