By Jon Vollemaere, R5 Profit & Loss Conference, Shanghai, November 12th, 2015
By Jon Vollemaere, R5 Profit & Loss Conference, Shanghai, November 12th, 2015

CNH = Change Now Here

I’m reliably told Gai Bain 更改 is the Chinese word for change. It’s not so much the concept of change that’s so apparent in RMB markets these days – but more the speed of it. Like the Shanghai sky line – its moving on up fast.

First Published: e-Forex Magazine 63 / Recent Events / January, 2016

CNH = Change Now Here

We all know the RMB is becoming more mainstream in everyone’s trading activity - well on its way to challenge EUR and GBP for their spot and knocking out JPY entirely. But when I asked the audience the question.

“Will CNH become the CNY or will CNY become CNH?”

I got about an 50/50 raise of hands. Every currency has two uses. Firstly as the domestic unit of exchange but also ( and probably the bit we’re most concerned with ) is its use internationally. CNH has been the experiment. The stepping stone to opening the market. The NDF like currency unit – but with more flexibility and better oversight by its owner. Certainly the future model for any currently restricted economy to follow.

The battle for who is - The Big Swinging‭ ‬迪克‭ ‬in CNH - however, is being played right now. The Top 5 Chinese Banks looking to control the pair rather than allowing the top 5 US and Europeans to take that spot. Not surprising when you think about it – the DEM was dominated by the German banks – and why shouldn’t Chinese Banks be the CNH money centre? The technical ability of Chinese Banks however is still nascent and Shanghai as an FX city is still in its early days – but this is changing and changing fast.

One of the more interesting discussion points was the balance between Deutsche who sees 50-60% of their CNH business being Algo traded ( via Autobahn presumably) and EBS who see 80% manual trading.

This number surprised me. Wasn’t it too soon for CNH to be so actively etraded ?

The story of RMB is very much a story of who is in ‘control’ and the PBoC keeps a very tight rein on proceedings as a good central bank should. But once the HFT gang have you in their grasp – the computer is in control and who controls the computer? A moot question perhaps – but when you look at what are the main questions for the G10 right now:  Bank v Non Bank, Regulation Change, Computer v Man, Rise of the Exchange. It would appear the same is true for RMB. The future of the FX market is the Future of the RMB or rather RMB is the Future of the FX Market.