Strong Singapore dollar thwarts Singapore's RMB plans

Singapore’s strengthening dollar is preventing the city-state from becoming an alternative to Hong Kong for renminbi deposits.

As a consequence, Singaporeans are keeping their savings in the faster appreciating Hong Kong dollar, said Bank of China Ltd. While RMB deposits in Hong Kong have risen 75% from the start of 2011, a similar trend in Singapore is unlikely considering the Singapore dollar’s 5.9% gain against the U.S. dollar this year, the second largest among Asia’s 11 most-traded currencies.

The offshore RMB has risen 1.4% against the U.S. dollar this year, compared with a 0.2% increase in the Hong Kong dollar, which is pegged to the greenback.

“It is the exchange rate between the Hong Kong dollar and the offshore yuan that allowed Hong Kong to gather a huge pool of funds,” said said Zhang Qingsong, head of BOC’s Singapore branch. “If you want to keep the purchasing power of your savings, you choose a stronger currency. In Singapore, that won’t be the case as its dollar has appreciated greatly.”

Hong Kong is the world’s biggest offshore RMB center and accounts for 80% of payments in the Chinese currency. RMB deposits in Hong Kong came to US$88 billion in August from US$50 billion in January 2011, said the Hong Kong Monetary Authority.

Depositors in Singapore hold about US$9.6 billion. Bank of China, one of the Big Four state-owned banks and the fourth-largest mainland bank by market value, holds up to 15% of the deposits.