China’s Renminbi Attains Reserve Currency Status: What Does It Mean for Investors in Singapore?


On Monday, the International Monetary Fund had decided to include the renminbi in its basket of reserve currencies.

Starting October 2016, the renminbi will have a 10.92% weighting in the basket, making it the third largest among the other reserve currencies. The dollar will still reign supreme though, with its future 41.73% weighting. The other reserve currencies are the euro (30.93% future weighting), yen (8.33%), and pound (8.09%).

IMF Managing Director, Christine Lagarde, commented that the “continuation and deepening of these efforts [China’s currency reforms] will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”

This development represents a significant milestone for the renminbi as it shows that the international community is acknowledging China’s effort in liberalizing its currency.

But when all is said and done, what might the renminbi attaining reserve currency status mean for investors here in Singapore?

With a more globally-recognised currency now, it might make it much easier for Chinese firms to conduct business internationally. Moreover, it might also encourage more foreign companies to start doing business in China. With the potential for an increase in trade activity as well as more financial reforms in China, the financial services sector in Singapore might be well positioned to benefit in the future.

Back in 2013, Singapore became a regional gateway for the renminbi when the People’s Bank of China appointed ICBC Singapore as a clearing bank for the currency.

While Singapore’s local banks, namely DBS Group Holdings Ltd (SGX: D05)Oversea-Chinese Banking Corp Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11), are not the official clearing banks for the renminbi, growth in trade between Singapore and China has the potential to increase significantly in the future – that can indirectly benefit Singapore’s banks. In fact, the level of renminbi deposits in Singapore has already increased by more than 130% between June 2013 and June 2015.

Foolish Summary

The IMF’s decision to set the renminbi as a reserve currency is a big economic and financial milestone for China. As the renminbi continues to liberalise, it’s easy to envisage more trade happening between China and the rest of the world. And, that in turn may not only benefit firms in China, but also companies outside the country such as our three local banks.

For more insights on investing and to keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.