RMB Clearing Bank

An RMB clearing bank (also called a renminbi clearing bank or offshore RMB clearing bank) is a bank designated by the People's Bank of China (PBOC) to provide clearing and settlement of renminbi transactions in a particular jurisdiction outside mainland China. Banks in that market open RMB accounts with the clearing bank, which settles payments among them and connects them to the mainland's payment infrastructure.

The arrangement was a central building block in the internationalization of the Chinese currency. It allowed an offshore RMB market to develop in places such as Hong Kong, Singapore and London while China retained capital controls on the mainland.

The first arrangement began in Hong Kong, where Bank of China (Hong Kong) was appointed clearing bank in late 2003 to support personal RMB business launched the following year. Macau followed, and from 2009 onward the scope widened as China permitted cross-border RMB settlement of trade. Between 2012 and 2016 the PBOC appointed clearing banks in a series of financial centers across Asia, Europe, the Middle East, the Americas and Africa, generally choosing a branch or subsidiary of a large Chinese state-owned bank. In 2018 it appointed a non-Chinese bank, JPMorgan Chase, as a second clearing bank for the United States.

A clearing bank holds a clearing account with the PBOC, or with the mainland head office of its group, and has direct access to China's payment systems. Local participating banks hold RMB accounts with the clearing bank. When a customer in the offshore market pays RMB to another bank in the same market, the clearing bank moves the funds across its own books. When the payment goes to the mainland, the clearing bank routes it into the onshore system, increasingly through the Cross-Border Interbank Payment System (CIPS), where many clearing banks act as a direct CIPS participant and local banks connect as an indirect CIPS participant.

Clearing banks also provide liquidity. They can access the onshore interbank market and, in some centers, standing liquidity facilities supported by the PBOC or by a local central bank through a central bank swap line. This matters because offshore RMB deposits can be thin, and sudden demand for the currency can push up offshore interest rates.

The renminbi traded and held outside the mainland is known as CNH, while the onshore currency is onshore RMB, or CNY. Both are the same currency, but they trade at slightly different rates because funds cannot move freely between the two pools; the difference is tracked as the CNY–CNH spread. Clearing banks sit at the boundary of the two pools: they are the channel through which permitted flows, such as trade settlement, cross onshore. Rules from the PBOC and the State Administration of Foreign Exchange (SAFE) determine which flows qualify.

For a business or a payments company outside China, the clearing bank is usually invisible: it deals with its local bank, which in turn deals with the clearing bank. The arrangement still shapes practice. Payments settled within an offshore center can complete in local business hours rather than mainland hours; settlement in central bank money is not available offshore, so participants carry exposure to the clearing bank; and documentation checks on trade-related flows may be applied at several points in the chain. A local RMB clearing bank also gives regional banks an alternative to holding RMB through a correspondent bank in Hong Kong or the mainland.

The clearing-bank model concentrates activity in a single institution per market, creating operational and credit concentration. As CIPS has grown, more banks connect to it directly, and the relative role of individual clearing banks has narrowed in some centers. RMB use in international payments also remains modest compared with the US dollar and the euro, so clearing volumes in many designated centers are small. The Hong Kong arrangement remains by far the largest. For regulatory detail on the supervisor that oversees the city's arrangement, see the Hong Kong Monetary Authority regulator profile, and for China's central bank, the People's Bank of China regulator profile.

• People's Bank of China