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The online magazine of the Swiss Bankers Association
2016/03/30 12:35:00 GMT+2

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Mission accomplished, RMB hub established

Mission accomplished, RMB hub established

The objective of establishing a renminbi hub in Switzerland has been achieved. A summary of a success story.

Switzerland as a hub for the Chinese currency, the renminbi, or RMB for short? A number of Swiss banks have been operating in China for years now and have been doing business and managing customer assets – and an RMB hub is nevertheless to be established in Switzerland? This objective is highly worthwhile, because the RMB presents exciting opportunities for investment and diversification for both banks and customers. A hub also opens the door to new business that holds significant potential for the banks in areas such as commodity trade financing and pension schemes. The Swiss Bankers Association (SBA) and other stakeholders in Switzerland have campaigned for the establishment of such a hub for the past two years.

The SBA played important role in advancing development of the hub

The establishment of a hub requires that a number of conditions be in place. In order to ensure these prerequisites were met, the SBA, together with other stakeholders, has made these conditions its priority over the last two years. Today, Switzerland meets all the requirements for an RMB hub:

In the summer of 2014, leading representatives from Switzerland and China’s commercial banks, central banks and governments met at the invitation of the SBA and the China Banking Association for the First Chinese - Swiss Financial Round Table. At this event, the Swiss and Chinese national banks, which had already been in contact for some time, reached an agreement for an RMB 150 billion (CHF 21 billion) swap line. Another meeting was held in September 2015 in Beijing. At the same time, government representatives from the two countries met once again to continue their regulatory dialogue.

IMG_2879_klein.jpg
2nd Chinese - Swiss Financial Round Table
Since January 2015, Swiss financial institutions can make direct investments in China thanks to a so-called investment quota (Swiss RMB Qualified Foreign Institutional Investor Quota RQFII) of up to a total of RMB 50 billion (CHF 7 billion). The first sub-quota, for a total of RMB 5 billion, was granted to Swiss Re. Further to this, direct trading between the Swiss franc and the Chinese RMB has been possible since November 2015. In other words: there is a direct exchange rate between the two currencies.

In a final important step, the Chinese Construction Bank recently opened a branch in Zurich after the People’s Bank of China granted authorisation for the branch to act as a clearing bank for RMB at the end of last year. Together with the swap line mentioned previously, this branch now makes it possible for RMB clearing to be conducted in Switzerland. This facilitates and promotes the use of RMB in cross-border transactions between companies and financial institutions.

China is also interested in taking advantage of the experience of the banks in Switzerland in other areas. An agreement on education and professional training, reached expressly between the SBA and its Chinese partner organisation, outlines this mutual interest and in future will ensure that Chinese financial experts will have the possibility to undergo training and pursue further education in Switzerland.

This branch now makes it possible for RMB clearing
to be conducted in Switzerland.

Longstanding partnership between Switzerland and China

The close collaboration between China and Switzerland is not a recent development. China has been one of Switzerland’s important partners in foreign trade for many years. The free trade agreement that came into effect between the two countries on 1 July 2014 promotes and further improves their economic cooperation. Further to this, Switzerland just recently became a founding member of the Asian Infrastructure Investment Bank (AIIBB), a multilateral development bank.  

Welcome to Switzerland, dear renminbi.

The future of the Swiss financial centre with China and the world

Through its positioning as an international RMB hub, the Swiss financial centre has established a further supporting pillar for its activities. The Swiss Bankers Association made a significant contribution to this development and in its role as “architect of the framework conditions”, has influenced the future of the financial centre. All of the conditions necessary for a hub are now in place. Welcome to Switzerland, dear renminbi. It is now up to the banks and customers to take advantage of these new, exciting areas of business. Thanks to this kind of effort, their capacity for innovation and their expertise, the banks in Switzerland remain well-equipped for their future.

What is a renminbi hub?

Currently, the buzzword “hub” is often heard in connection with the Chinese currency and Switzerland. A hub is a city or region that serves as a centre or intersection for services, e.g. in the financial sector. In the case of Switzerland as an RMB hub, this means that Switzerland is developing into the regional marketplace for cross-border financial transactions in renminbi. Globally, there are currently 14 RMB hubs, including London, Paris and Frankfurt.