PEER-TO-PEER LOANS ON SHARP GROWTH CURVE
The yuan and the SDR
g FROM PAGE 17
mainstream, the British Chancellor has flagged
a move to expand ISA-approved investments to
include equity and loan crowd-funding.
As Anderson sees it, UK authorities are try-
ing to get the regulations right so that they
minimise damage to investors, yet do not ham-
per the industry from developing further.
The first peer-to-peer platform, Funding
Circle, was launched in the UK five years ago.
The first peer-to-peer platform in the US is Pros-
per, launched in 2006.
Anderson says the forecast is for the UK
industry to reach £5 billion this year. “But I
expect it to reach £7-£8 billion,” he told ATI.
However, Stevenson is more conservative,
saying that more likely total lending for this
year is £2- £3 billion, with the majority of loans
going to consumers, and perhaps 35-40 per
cent going to business.
ArchOver set a record in July with a £1 mil-
lion loan. It is currently working on loans total-
ling £17 million. “Our model is different from
others in the industry. We work with account
receivables of a company and its growth pros-
pects. We do a floating charge on the receiva-
bles and take out credit insurance to protect
against defaults,” Anderson says.
}UK authorities are
trying to get the
regulations right so they
minimise damage to
investors, yet do not
hamper the industry from
developing further~
Typically, most crowdfunding platforms work
with a large crowd putting in small individual
amounts. For example, the average investor put
£167 into loans (average size £60,000) made by
Funding Circle, one of Britain’s largest crowd
funders. By comparison, ArchOver works with
a small crowd, and its average loan for borrow-
ers is £250,000.
The average investor is £5,000 per pledge
against these loans and £75,000 for institutions.
Anderson says liquidity is an issue, and that
most platforms deal with it by having their own
internal markets offering the crowd an opportu-
nity to cash in their loans.
ArchOver has formed a partnership with a
company known as Asset Match, a platform
that provides a market place for private compa-
nies to sell shares in private companies. This
enables the ArchOver crowd to sell loans to
third parties.
In a recent research note, Morgan Stanley
forecast that peer-to-peer lending in Australia
would grow to AUD22 billion by 2020.
Stevenson declines to make a forecast so far
out, but agrees that peer-to-peer will continue
to grow. He adds that there are three factors
that could interrupt growth. “Firstly, if there is
a recession, because defaults will rise; second-
ly, if interest rates jump by two to three per
cent; and, lastly a regulatory clampdown
on the industry.”
18 | DECEMBER/2015/JANUARY 2016
BANKING AND FINANCE
IMF ruling says future RMB
a ‘freely usable’ currency . . .
AT SOME point, the RMB will be ‘solidly number four’ as the fourth most
commonly used currency in global interbank settlements, overtaking Japan,
says SWIFT Chief Executive, Gottfried Leibbrandt . . .
From October next year, the Addressing the annual SWIFT Summit,
Chinese currency, the yuan, will become part of SIBOS 2015, in Singapore, Leibbrandt conced-
the basket of reserve currencies of the Interna- ed that the RMB has had an impressive rise. “It
tional Monetary Fund’s Special Drawing Rights started in position 17 about two years ago when
(SDRs). we began tracking,” he said.
It will stand alongside the US dollar, the yen, But Leibbrandt, like many others who spoke
the Euro and the British pound in the basket of about the Chinese currency at SIBOS, added:
SDRs. The SDR is an international reserve asset “I don’t expect the RMB to be the reserve
created by the IMF in 1969 to supplement its currency or even a reserve currency of the
member countries’ official reserves. world (soon).
The IMF has determined that “If we go back to history and remember the
the Chinese renminbi will take US dollar, it only overtook the
up 10.92 per cent of the SDR pound as a global reserve cur-
basket — a bigger weight than rency in the 1880s. (That is)
that given to either the Japa- when US GDP became the larg-
est in the world, but it was 30 or
nese yen or the pound sterling.
The US still holds a 41.73 per 40 years after World War One,
cent weighting in the SDR with a significantly weakened
British Empire and finances.
bsket, followed by the euro with
30.93 per cent. “The US had developed
deep, liquid and sophisticated
By including the yuan in the
SDR basket, the IMF’s Execu- domestic capital and financial
tive Board is saying that, effec- markets. (So) I think it will be a
tive October 1 next year, the while before the RMB gets
Chinese renminbi is classified there, and it will be very inter-
as a “freely usable” currency. esting to watch its rise.
For Beijing, this is certainly a “At the end of the day, the
Gottfried Liebbrandt —
big move forward. And there Move from West to East will move from the West to the East
will be celebrations. October 1 continue. will continue. It will not hap-
coincidentally, is China’s Na- pen overnight, but it will con-
tional Day. tinue very steadily, creating
But for many, the question remains: Is the opportunities for banks in both the East and the
Chinese currency really freely usable? West.”
In one sense it probably is. Currently, some 62 per cent of the world’s for-
According to SWIFT, (the Society for World- eign exchange reserves are denominated in the
wide Interbank Finance Communications), the US dollar, 25 per cent in the euro, four per cent
renminbi became the fourth most commonly each in the British pound and the yen, 1-1.5 per
used currency in global interbank settlemeunts cent in Swiss francs, and about one per cent in
in October, overtaking Japan. RMB, according to leading China economist,
But SWIFT Chief Executive, Gottfried Chi Lo.
Leibbrandt, believes the RMB and the yen will Chi who is senior economist with BNP
go back and forth in fourth and fifth position for Paribas Investment in Hong Kong, says there
some time to come. Then, he adds, at some have been “seismic changes” in global financial
point, the RMB will be “solidly number four”. markets. There is now a window for the RMB to
rise because of structural flaws behind the
major currencies – the greenback, the euro and
the yen.
}The reality is that China He believes the level of trust in the US dollar
is eroding, while continuing uncertainty in the
is inching ahead at its Eurozone is not helping the euro. The Japanese
own pace, constantly economy has its own structural problems.
Against this background, Chi says the RMB
juggling with domestic has an important role to play in reshaping the
realities and international world of foreign exchange.
The volume of Chinese yuan used in trade
expectations~ settlements has risen from around RMB10
g CONTINUED PAGE 19
ASIA TODAY INTERNATIONAL
 ASIA TODAY
BANKING AND FINANCE

realities and international expectations.

g FROM PAGE 18
billion a month in 2010 to RMB 1.3 trillion today.
In fact, more than 20 per cent of China’s foreign
trade is now settled in RMB.
The Chinese currency has become one of the
most widely-used currencies in Asia.
The pool of RMB sitting in Hong Kong has
grown from zero to almost RMB1 trillion in seven
Sources told ATI that China is certainly mov- ONLINE
ebrief.
ing towards opening its capital account, but
this has to be managed carefully because of
the danger of capital leaving the country en
masse.
The sources noted that there were chaotic
and massive outflows in the first two quarters
of the year, and these prompted drastic reac-
tion from Chinese authorities, who blamed the
outflow for China’s declining foreign reserves. A summary of
But Chi says this decline is on the back of a
rising trade surplus, and that net FDI inflows what you might

www.asiatodayinternational.com
may not necessarily reflect serious large capi-
years. Many countries in Asia now issue bonds
in RMB — the Dim Sum bonds in Hong Kong,
tal outflows. Rather, he says, a large part of the
decline reflects the impact of depreciation on
have missed...
Formosa bonds in Taiwan and Lion City bonds
the basket of currencies against the US dollar
in Singapore.
in which Chinese reserves are held.
In October, China picked London as its first
non-Asian overseas financial centre in which to
China’s reserves consist of foreign assets ...with direct links
denominated in seven major currencies,
open a sovereign debt market. Within weeks,
the Chinese central bank, the People’s Bank of
including the euro, the yen and the pound to what you decide
China, had issued short term, one-year bills
sterling. The fall of these major currencies
against the US dollar since mid-2014 reduced really matters.
which were six times over-subscribed.
Following this success, China is now expect-
the value of China’s reserves by as much as
US$260 billion in the second quarter of 2015,
Emailed direct to you.
ed to issue long-term Chinese treasury bonds in
according to Chi.
RMB in London, which became the first Western
On the surface, it is estimated by some
country given the status of a RMB clearing bank
observers that China suffered outflows of
in 2014.
Fourteen banks around the world have now
US$300 billion between the third quarter of Our Online Services
2014 and the second quarter of 2015. After
been designated as RMB clearing banks.
allowing for the valuation effect, actual capital
But the market has been jumpy following
outflows are likely to be smaller, he says.
China’s recent move to impose capital controls
and other measures following the dramatic col-
Sources told ATI that the internationalisa- ATI NEWSWIRE
tion of the RMB is being delayed for fear that
lapse in August of its share markets. daily news updates
the Chinese people will rush to export their
Speaking at a SIBOS panel discussion on
capital. They say that, since 2010, the risk of
China on the RMB, Becky Liu, a rates strategist
capital flight has increased. The Chinese are OPINION ANALYSIS
at Standard Chartered in Hong Kong, said issu-
getting around
ance in the Hong Kong
their inconvertible behind the headlines
Dim Sum bond market
currency by con-
declined sharply imme-
diately after August.
}It is hardly surprising verting it into hard
assets overseas. RSS FEEDS
Liu said gross issu- that Beijing has to Real estate is the
ance in September was economic data, trends
down by more than 90 agonise on the most common as-
set.
per cent from the
monthly average earlier best course of action There are many TRENDLINES
ways for the Chi-
in the year. The primary
market has since been
going forward. nese to get their change and opportunity
money out of China
recovering, supported
by the Government and
It is not as — through over-
invoicing, using BUSINESS DIARY
State-owned bank issu- straightforward credit cards to coming events, briefings
ances such as the PBoC
bill offering in London. as many outside withdraw cash out-
side the Mainland
“Despite this, current
issuance remains at China think~ and through gam- BUSINESS TRAVEL
bling in casinos in
around 50 per cent be- airline, hotel updates
Macau.
low the pre-August av-
It has been re-
erage,” she says. Due to the high run-off rate of
the Dim Sum bond market, the market could
ported that one of the tricks used by Mainland
Chinese is to use credit cards to withdraw
Business news
shrink further. She says around 40 per cent of
outstanding securities will mature in the next 12
large amount of cash for fake purchases over-
seas. “Beijing has plugged the loopholes, but
that Matters!
months, and, given a lacklustre primary market,
the sky is the limit in Chinese creativity, “says
this suggests that the outstanding Dim Sum
one source.
bond market is likely to shrink further in the
It is hardly surprising, then, that Beijing has
quarters ahead.
to agonise on the best course of action
The question now on many lips is just when
forward. It is not as straightforward as many
the world might see full convertibility of China’s
outside China think.
current account.
Things are different in China.
Expectations are growing, and depending on
who one talks to, the time frame can either be n China continuing to free up its financial INTERNATIONAL
rather short or long. If you ask the Chinese, the markets, page 20
inevitable answer is always that it is difficult to
give a precise time.
The reality is that China is inching ahead at
its own pace, constantly juggling with domestic

ASIA TODAY INTERNATIONAL DECEMBER/2015/JANUARY 2016 | 19