Anselmo Teng: Internationalization of the RMB and the role of Macao as
a financial platform
Address by Mr Anselmo Teng, Chairman of the Monetary Authority of Macao, at the "2013
Internationalization of RMB Global Forum", jointly organised by the Shanghai Institute of the
International Financial Centre of the Shanghai University of Finance and Economics and the
Centre for International Finance and Regulation (Australia), Shanghai, 26 May 2013.
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Dear Delegates,
Ladies and Gentlemen,
1) First of all, I would like to express my gratitude to the Shanghai Institute of the
International Financial Centre of the Shanghai University of Finance and Economics
for inviting me to this forum. At the moment, the internationalization of the RMB not
only attracts the attention of the Mainland community, but also global financial
markets. I am very pleased to take this opportunity today to present some of our
views on this important topic and the role of Macao as a financial platform.
The internationalization process of the RMB
2) Over the years, in order to deepen further financial reforms, the RMB
internationalisation process has been gradually implemented. In the 12th Five-Year
plan, the Central Government has clearly stated the strategic plan of "expansion of
RMB cross-border use and gradual realisation of RMB capital account convertibility".
In recent years, to steadily and consistently promote the RMB internationalisation,
the People's Bank of China (PBOC) and relevant government agencies have
broadened the flow-back channel for the RMB, increased the scope for RMB
cross-border use and opened up RMB foreign direct investment to foreign
enterprises.
3) After the eruption of the global financial crisis in 2008/09, however, the international
financial landscape has undergone significant transformation. While the world would
welcome China's currency reform towards free convertibility, concerns for
destabilising capital flows, against a backdrop of prolonged adoption of quantitative
easing policies by advanced countries, have notably heightened. International
organisations such as the IMF holds a more "practical" position that capital controls
are a legitimate part of the toolkit to manage capital flows in certain circumstances,
especially for Emerging-Market Economies. With proper control of systemic risk in
mind, the degree of stability of the international financial system would
correspondingly affect the pace of the currency reform in China. Relaxation of
capital control towards free convertibility and hence the internationalization of the
RMB, while I believe would remain the ultimate goals of the currency reform, would
proceed at a gradual pace, ensuring the stability, safety and soundness of the
Chinese financial system.
4) From the perspective of the theory of international finance, the realisation of
currency internationalisation hinges on two parameters, namely (i) free convertibility
of the currency; and (ii) use of the currency in international trade and financial
transactions. The first parameter falls into the scope of a country's monetary and
exchange rate policies while the second is directly related to a country's share in
international trade and financial activities.
In July 2009, the PBOC and relevant ministries of the State Council jointly
promulgated the "Management of Cross-Border RMB Trade Settlement Pilot
Programme", which was a pivotal step of the endeavour of the government to
promote the internationalization of the RMB. With the incessant expansion of the
pilot units, virtually all Mainland enterprises which are qualified to import and export
can have a free hand in using the RMB to settle all transactions with their trade
partners globally.
An update of the RMB business in the Macao Special Administrative Region (MSAR)
5) With the rapid development of the economy, there is an accelerated economic
integration between the Mainland and Macao. As a result, RMB business develops
quickly in Macao. At the moment, RMB deposits in Macao accounts for about 10%
of the deposits in the banking system. There is a marked progress in the RMB
cross-border trade settlement despite a slow start. Cross-border trade settlement
transacted in 2011 increased substantially by 10 times from 2010 and the volume in
2012 continued to record an increase of over 60%. In the first quarter this year, the
substantial growth continued; the volume of cross-border trade settlement rose by
almost 80% and already reached 40% that of last year.
6) The Monetary Authority of Macao, in the course of managing the fiscal reserve of
the government, has invested in the onshore market through the CIBM quota (i.e.
China Interbank Bond Market quota) granted by the People's Bank of China. We
also invest in the RMB offshore market in Hong Kong as a supplement to the
onshore RMB portfolio. From a more global perspective and looking ahead, along
with an increasing weight in the RMB in global trade settlement and a rising
investment interests from abroad, the internationalization path of the currency would
lead to more market opportunities, both for the domestic mainland investors and
offshore international investors.
The economic situation and the banking sector of Macao and how the RMB business
evolves
7) Under the auspices of the Central Government, the Macao economy has enjoyed
rapid growth. Since its return to the Motherland, the overall economy of Macao has
been expanding at a compound rate of 12.4%. In 2012, per capita income exceeded
USD76,000. As a special administrative region, the economy of Macao can be
classified as small, but it can and should contribute to the process relating to the
"internationalization" of the RMB. As a matter of fact, Macao is always an advocate
of free market system, there is no exchange control; the financial markets and
institutions operate freely; there is free flow of funds into and out of the MSAR,
which together laid down the foundation of its fine system. There are 29 banks
operating in the Macao banking system. They are of different origins; the Mainland,
Chinese Taipei, HKSAR, Singapore, the US, the UK and Portugal. As at 31/03/2013,
non-performing loan ratio was a meagre 0.14%, profit for the first quarter of 2013
was up 27.4% year-on-year, CAR (Capital adequacy ratio) was around 15%. There
are good risks management, corporate governance, internal control and effective
supervision in the banking system. The banks have long been enjoying security and
stability.
Apart from servicing local needs, Macao banks are making use of Macao as a
platform in developing cross-border financial business with other nations and
regions. This has in fact provided facility and foundation for the "internationalization"
endeavour of the RMB. Particularly, Macao banks have accumulated ample
experience in the operation and management of RMB business. As early as in 2004,
Macao became one of the pilot areas for RMB offshore business while the PBOC
appointed a clearing bank for RMB business to banks that offer individual RMB
business in Macao relating to deposit, exchange, remittance and bank card. In July
2009, Macao banks were allowed to conduct settlement for cross-border trades
denominated in RMB. At the moment, RMB is freely circulated in Macao like other
currencies. As long as the funds will not flow back to the Mainland, banks in Macao
have a free hand in handling all types of RMB business to cater to the needs of the
market. Besides, the Real Time Gross Settlement System of Macao has interface
capabilities with the Mainland and will surely facilitate cross border clearing for the
RMB.
The role of Macao as a trade platform between the Mainland and Portuguese speaking
countries
8) On a more international perspective, Macao has been exploiting its special
geographical and historical conditions in performing its liaison platform function for
economic cooperation between China and Portuguese speaking countries, namely
Angola, Brazil, Cape Verde, East Timor, Guinea-Bissau, Mozambique, Portugal and
São Tomé e Principe. They have a total population of more than 200 million and
endowed with abundant natural resources and energy potentials. In the 12th
Five-Year-Plan, it is stipulated that Macao will have strong support in the
development of a service platform for the economic cooperation between China and
Portuguese speaking countries, whereby appropriate economic diversification of
Macao can be promoted.
Recently, there is an increasing rise in economic activities between China and
Lusophone countries. Trade volume with the 8 Lusophone countries amounted to
USD128.8 billion in 2012, which was a 10.1% increase year-on-year. There is a
great demand in the market for related financial services. Macao can fully embody
its platform function by providing solid financial support services for trade. 5
9) Some Portuguese speaking countries would like to share Macao's experience in
managing RMB business as well as the experience in dealing with investment in the
currency. To this end, recently, the Central Bank of Mozambique, under the terms of
the "Memorandum of Understanding" with the Monetary Authority of Macao,
arranged to send officers to Macao in mid-April with a view to making preparation for
future development.
10) On the other hand, banks with capital from China and Portugal account for the lion's
share in Macao's banking industry. Some banks of Chinese capital have executed
business cooperation agreements with financial institutions of some Portuguese
speaking countries. Under such indigenous competitiveness, the MSAR
Government is leading local financial institutions to make full use of the development
opportunity offered by Portuguese speaking countries to further expand their
business. As such, we can grasp the chance and direct suitable financial institutions
and enterprises to invest in those countries through Macao as the platform. We
follow the strategic direction of "internationalization" as postulated by our country.
Such a move will have spill-over effect on other economic/trade activities, and such
support services can be provided by the Macao financial system.
11) In November 2010, the then Premier of the State Council, Mr. Wen Jiabao, visited
Macao for the 3rd Ministerial Meeting of the "Forum for Economic Cooperation
between China and Portuguese Speaking Countries". He announced a series of
policy measures to promote Macao to be the platform for economic cooperation
between the countries. He hoped that Macao would perform "core function" in
promoting RMB trade settlement in the process, which would further embody
Macao's position as platform for economic cooperation between China and
Lusophone countries.
12) Macao's uniqueness and competitive edges support its development into a RMB
settlement platform for commercial and trade activities between the Mainland and
Portuguese speaking countries. At the moment, the division of labour between the
two financial centres, Shanghai and Hong Kong, is clear cut; Shanghai is the
"onshore" RMB centre while Hong Kong is the leading "offshore" centre. It is
envisaged that Macao can strengthen its cooperation with Shanghai and Hong
Kong, exploring the opportunity arising from the orderly financial reform in the
Mainland. To cope with the need of the country, Macao can serve as a platform for
regional economic and trade cooperation, by which it can help create an
accommodative environment conducive to external trade, overall economic
development, financial reform and modernization of our country. Under such positive
interaction, we can promote jointly the process of the internationalization of the
RMB.
Thank you!