China’s weekend decision to widen its currency’s trading band has sparked a debate on where the next yuan offshore trading center will be located. While Hong Kong holds the lead for the amount of international trade settled in yuan, other financial centers like Singapore and London are competing to be crowned the next yuan offshore hub.
John Noonan, a Senior Forex Analyst with Thomson Reuters told CNBC’s Squawk Box Asia that extending the yuan settlement to Singapore is a natural next step. “I would think that they would start off in the (Asian) region, I don't know their timetable but obviously they are moving in that direction,” said Noonan.
Singapore has the advantage of a large Chinese-speaking population. But some observers feel China’s next move will be an immediate jump to a major center outside Asia. “They'd rather go for the London option because at the end of the day it is the largest trading center for forex globally,” said Arjuna Mahendran, Head of Investment Strategy for Asia at HSBC Private Bank.
Mahendran also thinks China’s plans to catapult Shanghai to the position of the top financial center in Asia by 2020 means they won’t be doing Singapore any favors. “I suspect they will probably not want to see the yuan being traded in any of their competitor centers around Asia.”
While a decision from China on the next yuan hub is not expected anytime soon, Mahendran says intense, high-level lobbying will quietly continue. “This is the world’s next reserve currency so you want to be ahead of the curve.”