January 12, 2011
In its latest step to make the renminbi a competing global reserve currency, China’s predominantly state-owned Bank of China will now let individuals open renminbi savings accounts… in the United States.
Effective immediately, BOC’s US individual customers can now open a renminbi denominated savings account with a $500 equivalent minimum balance. The bank also offers certificates of deposit in 6-month and 1-year terms with a minimum of $1,000 equivalent.
The account opening procedures are simple– there is an application form, a W-9 tax form, and a signature card. Applicants are also required to provide a government-issued ID and one other form of identification such as a credit card, employee ID card, insurance card, etc. You do have to show up in person.
Businesses can also open renminbi accounts with a $5,000 equivalent minimum and requisite entity paperwork like Articles of Organization, etc.
At this time, renminbi cash cannot be withdrawn from the account, though I would expect this to change eventually. The bank does provide currency exchange services between dollars and renminbi at its Chinatown branch in New York; current limits are up to $4,000 per day, and $20,000 per year.
China doesn’t do anything overnight, and I believe the government is executing a long-term plan to make Shanghai the world’s leading financial center… and as a part of that plan, for the renminbi (or some derivative) to become a fully-convertible competing global reserve currency.
We’re already seeing significant signs of this– many sovereign nations are holding renminbi in reserve instead of just dollars, and Chinese cross border settlement is now frequently being transacted in renminbi instead of dollars because of new clearing and settlement platforms that have been established in Hong Kong.
Just last week I wrote about a new renminbi denominated gold contract that will trade in Hong Kong, as well as the recent World Bank renminbi bond issuance.
Bank of China’s move in the United States is just the latest step in this long-term process to loosen exchange controls and achieve full convertibility of the renminbi, and I think we’ll see even more steps like this in the coming months and years.
More specifically, I imagine that a similar exchange platform will be unveiled in Europe for euro and pound conversion into renminbi; that further renminbi-denominated contracts in Asian staple commodities like rice will hit the Hong Kong exchange; and that many of these contracts will move beyond Hong Kong to other exchanges.
Singapore is the most likely candidate to absorb renminbi contracts; the Singapore exchange (SGX) already operates global depository share trading of mainland Chinese companies, and it always does its best to stay on the cutting edge of finance.
After Singapore, I think we’ll see renminbi contracts spreading across the region into places like Australia (which has strong economic ties to China) and Thailand (an agricultural commodities powerhouse).
Several years from now, the entire world will know that the baton has been passed on the day that the US Treasury Department holds a bond auction denominated in renminbi, or the day when a bank wire transfer from Bangkok to Boston passes through a corresponding bank in Shanghai.