reached 1l percent. Adding trade in services to goods, the quarterly volume exceeds RMB 1 trillion in Q1 2013 for the first time( Figure 1). This strong progress in renminbi trade settlement was not matched on the financing side Most firms reportedly continued to denominate offshore treasury operations in dollars. This is attributed by market participants to the fact that offshore currency markets are more developed than offshore rates markets. There is reportedly good liquidity in renminbi spot, forwards and swap markets but renminbi interest rate swap and repo markets are still lacking This leads corporate treasury managers to continue to operate in dollars where these markets are well developed, deep and liquid, which allow more effective hedging of interest rate and other risks. There has been substantial growth in offshore renminbi debt instruments, but secondary market liquidity is low partly owing to the lack of offshore money markets. The introduction of an offshore renminbi interest rate fixing in June 2013(that is, a CNH HIBOR fixing)should help by anchoring pricing in offshore interest rate swap and repo markets The stock of offshore renminbi financial assets expanded steadily with the supply of Dim Sum"bonds reaching RMB 267 billion by March 2013(Figure 2 ) Renminbi bank loans in Hong Kong Sar also expanded, reaching RMB 89 billion by March-2013(Figure 3). Both benefitted from liberalization measures that opened channels for offshore renminbi to flow back to the Mainland through renminbi denominated fdi and into mainland interbank bond equity and fixed income markets, which allowed these onshore investments to be funded offshore. Finally, a wide range of specialized offshore renminbi products have been created, including equity reit (listed in April 2011), renminbi Exchange-Traded Funds, insurance products, derivatives(offshore deliverable renminbi futures and options)and commodities (e.g, Gold ETFS, listed in February 2012) Figure 2."Dim-Sum"Bonds Outstanding Figure 3. Renminbi Loans in Hong Kong SAR (RMB bn) (RMB bn) March o/s: RMB aOutstanding RMB loans in Hong Kong SAR 200 200 100 2010 Source: Hong Kong Monetary Authority(HKMA Growth in renminbi bank deposits, including certificates of deposits, has been less steady They rose from 2 percent to 1 l percent of total deposits in Hong Kong Sar in less than two years; but, then, peaked at RMB 700 billion in November 201 1 and contracted. Only recently have they started to expand again, reaching of rMb 812 billion in March 2013( Figure 4) This temporary stagnation in renminbi deposits was associated with an increase in the I This working paper uses information up to April 20134 reached 11 percent. Adding trade in services to goods, the quarterly volume exceeds RMB 1 trillion in Q1 2013 for the first time (Figure 1).1 This strong progress in renminbi trade settlement was not matched on the financing side. Most firms reportedly continued to denominate offshore treasury operations in dollars. This is attributed by market participants to the fact that offshore currency markets are more developed than offshore rates markets. There is reportedly good liquidity in renminbi spot, forwards and swap markets but renminbi interest rate swap and repo markets are still lacking. This leads corporate treasury managers to continue to operate in dollars where these markets are well developed, deep and liquid, which allow more effective hedging of interest rate and other risks. There has been substantial growth in offshore renminbi debt instruments, but secondary market liquidity is low partly owing to the lack of offshore money markets. The introduction of an offshore renminbi interest rate fixing in June 2013 (that is, a CNH HIBOR fixing) should help by anchoring pricing in offshore interest rate swap and repo markets. The stock of offshore renminbi financial assets expanded steadily with the supply of “Dim￾Sum” bonds reaching RMB 267 billion by March 2013 (Figure 2). Renminbi bank loans in Hong Kong SAR also expanded, reaching RMB 89 billion by March-2013 (Figure 3). Both benefitted from liberalization measures that opened channels for offshore renminbi to flow back to the Mainland through renminbi denominated FDI and into mainland interbank bond, equity and fixed income markets, which allowed these onshore investments to be funded offshore. Finally, a wide range of specialized offshore renminbi products have been created, including equity REIT (listed in April 2011), renminbi Exchange-Traded Funds, insurance products, derivatives (offshore deliverable renminbi futures and options) and commodities (e.g., Gold ETFs, listed in February 2012). Source: Hong Kong Monetary Authority (HKMA) Figure 3. Renminbi Loans in Hong Kong SAR 0 10 20 30 40 50 60 70 80 90 2010 2011 2012 Outstanding RMB loans in Hong Kong SAR (RMB bn) Growth in renminbi bank deposits, including certificates of deposits, has been less steady. They rose from 2 percent to 11 percent of total deposits in Hong Kong SAR in less than two years; but, then, peaked at RMB 700 billion in November 2011 and contracted. Only recently have they started to expand again, reaching of RMB 812 billion in March 2013 (Figure 4). This temporary stagnation in renminbi deposits was associated with an increase in the 1 This working paper uses information up to April 2013. Figure 2. “Dim-Sum” Bonds Outstanding 0 50 100 150 200 250 300 0 50 100 150 200 250 300 2007 2008 2009 2010 2011 2012 2013 Bonds/Notes March o/s: RMB 267 bn (RMB bn) (RMB bn)