Bonds, Currencies, Emerging Markets, Stocks

Russia, China Deepen Stock Exchange Ties

Yuan RubleRussia’s largest exchange group the Moscow Exchange (MOEX) and the China Financial Futures Exchange (CFFEX) signed an Memorandum of Understanding (MoU) on Thursday that will help further develop financial ties between the countries.

The MoU signed by both exchanges aims to strengthen the bilateral partnership and facilitate the development of both parties through information sharing, reciprocal visits by senior executives, staff exchange, and closer business cooperation in various areas, MOEX said in a statement.  The MoU was signed by Zheng Hu, CEO of CFFEX and Alexander Afanasiev, CEO of MOEX.

The Chairman of CFFEX, Shenfeng Zhang said: “With the State Council clearly emphasizing the importance of further developing financial derivatives in China in its 2015 annual government work report, CFFEX presses on with its efforts to facilitate the healthy and regulated growth of China’s financial futures market. To that end, it is crucial to draw on advanced overseas experience and strengthen cross-border communication and cooperation so as to seek global development. The signing of this MoU will further cement the relationship between CFFEX and MOEX, generating new opportunities for the two exchanges to step up cooperation in the common pursuit for development.”

The yuan-ruble currency pair is one of the fastest-growing instruments traded on Moscow Exchange as volumes for the pair have increased by 130 percent in the first half of 2015, with an average daily trading volume of 1.6 billion rubles ($28 million), MOEX says.

The CEO of MOEX, Alexander Afanasiev said, “In recent years China has become Russia’s biggest trading partner, and that cross-border commerce is increasingly settled in our national currencies. Likewise, yuan-ruble trading on Moscow Exchange has grown rapidly, increasing sevenfold last year alone. In response to client demand, we also launched yuan-ruble futures trading earlier this year, and in just a few months the instrument has become a core offering on our FX derivatives platform. Today’s MoU with CFFEX is the first step in exploring new opportunities for cooperation on various fronts.”

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The Move Away From the U.S. Dollar

In March, MOEX started trading future contracts on the yuan-ruble pair.

In late 2014, China and Russia switched to domestic currencies in trading by using financial tools such as swaps and forwards, as they looked to reduce the influence of the U.S. dollar and foreign exchange risks.

In December 2014, Russia’s Central Bank launched a SWIFT alternative for domestic payments in a move to shift away from Western financial dominance.

SWIFT (The Society for Worldwide Interbank Financial Telecommunication) is a Belgium-based global organization that provides services and a standardized environment for global banking communicating that allows financial institutions to send and receive messages about their transactions.

Russia’s Central Bank initiated the development of the country’s own version of the financial messaging system in response to repeated threats voiced by Moscow’s Western partners to disconnect Russia from SWIFT.

In May, Russia proposed an alternate to the SWIFT system for the BRICS grouping of emerging market nations — Brazil, Russia, India, China, South Africa — in a move which would further ramp up de-dollarization efforts and threaten the U.S. dollar’s global hegemony.

In March, China announced that they too had a SWIFT alternative to process cross-border yuan transactions, called the China International Payment System (CIPS), and it was ready to go and could launch as early as September.

The launch of the China’s CIPS will pave the way for internationalizing the yuan and should greatly increase global usage of the Chinese currency by cutting transaction costs and processing times.

China has been advertising the renminbi as the ‘new world currency’ as it continues to ramp up its drive for the globalization of its currency.

For over five years, China’s Central Bank Governor Zhou Xiaochuan has pushed for the yuan to be included into the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket basket.

To aid its efforts, China has ramped up its efforts to make the yuan more freely usable, in order to be considered for inclusion into the SDR basket.

Chinese Premier Li Keqiang told IMF Managing Director Christine Lagarde in March that China would speed up the basic convertibility of yuan on the capital account and provide more facility for domestic individual cross-border investment and foreign institutional investment in China’s capital market.

Li also said that China hoped to — through the SDR — “play an active role in the international cooperation to maintain financial stability and promote the further opening of China’s capital market and financial area.

In early 2015, China’s yuan emerged as one of the world’s top five payment currencies, overtaking the Canadian dollar and the Australian dollar, according to global transaction services organization SWIFT.


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