Renminbi Photo: VCG

The Monetary Authority of Singapore (MAS) announced on Monday it will provide up to RMB 25 billion ($3.81 billion) of funding to banks in Singapore, in a bid to deepen RMB (or yuan) liquidity and strengthen the banks' ability to meet the growing RMB business needs of customers in Singapore and the region, according to a news release by the MAS.

Under the initiative, RMB funds with a length of up to three months will be channelled to the primary dealers through MAS' money market operations. The funds will enhance the dealers' credit intermediation capabilities and overall RMB market liquidity in Singapore.

Primary dealers are banks in Singapore approved by the MAS to serve as specialist intermediaries in the Singapore Government Securities and Singapore-dollar money markets.

"The initiative is a good step toward boosting the RMB's position in Singapore," Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology told the Global Times on Monday, adding that the move comes as a result of Singaporean consumers' rising demand for RMB amid a trend of RMB appreciation." 

The yuan has continued to strengthen in value following China's upbeat October economic data. The yuan's mid-point reference rate against the US dollar rose by 67 basis points to 6.5719 yuan on Monday, the highest level since June 2018.

Dong noted that Singapore would have an increasingly active RMB market, particularly after the launch of the world's largest free trade pact, the Regional Comprehensive Economic Partnership (RCEP).

"I think the initiative allows more scope for imagination too," he said, adding that it means Singapore may include China's RMB in its foreign exchange reserve in the future. "In other words, Singapore may also develop some RMB-based assets in the future," Dong said.

The MAS previously established the MAS Overnight RMB Liquidity Facility and the MAS RMB Facility, two foreign currency lending facilities that allow eligible counterparties to borrow RMB funds to support the development of the offshore RMB market in Singapore.

Banks could access the backstop facilities to obtain overnight and fixed-length RMB liquidity, as needed by the banks to facilitate settlement needs and financing of cross-border trade and investment.

MAS will discontinue its RMB 5 billion MAS Overnight RMB Liquidity Facility from Monday, with the introduction of the new RMB 25 billion initiative. 

Market participants have indicated that the placement of longer tenors and larger amounts of RMB funding by the initiative, represent significant enhancements over the MAS Overnight RMB Liquidity Facility. 

The MAS RMB Facility remains in operation and will continue to provide additional fixed-term funding as needed by the market.

Global Times