China has opened a new front in its war to curb currency depreciation by buying up renminbi offshore, foiling the burgeoning carry trade and driving the cost of borrowing to a record high.
The elevated overnight CNH Hong Kong Interbank Offer Rate (Hibor) shows how volatility in China's currency — once a highly domestic sideshow for global investors — is fanning out across the globe through renminbi internationalization. Hong Kong, the biggest offshore market, bears the brunt.
It is also a potent sign of the lengths to which China's central bank is prepared to go to support the value of offshore renminbi, known as CNH.
In London afternoon trading on Monday, the offshore renminbi rose 1.2 per cent to CNH6.60, narrowing the divergence with the onshore renminbi, which was up 0.35 percent to CNY6.57.