New RMB cash pool in China regulation is a boon for multinationals

The PBOC has issued implementation rules for RMB cash pooling in China, which will facilitate cross-border RMB sweeping for multinationals, previously restricted to the Shanghai Free Trade Zone (FTZ).

Back in June, an announcement from the PBOC stated that it would allow nationwide RMB pooling. How that would happen was a bit unclear, but the PBOC has now provided clearer guidelines about the program. The announcement includes eligibility of multinationals, limits on net cross-border RMB inflows of the cash pool, a blacklist that forbids certain activities from pool participation, as well as the application process. The ruling is said to be detailed enough for program execution.

As Chinese clients become more valuable for multinationals, the inclusion of RMB into international treasury management systems will facilitate cross-border sweeping capabilities between China and the rest of the world. Several multinationals, such as Citi and Intel, have previously set up automated RMB cash pools in the FTZ, allowing their clients and subsidiaries to integrate RMB effectively into their treasury management structures. By allowing multinationals to connect and pool their cash reserves increases efficiency and decreases costs of funds flowing in and out of China, thus supporting their regional and global operations.

The PBOC will be restricting the amount of funds flowing into China by putting an upper-limit at 10% of total owners’ equity cash pool. Although this may rise in the future, it demonstrates the central banks’ cautious stance toward RMB inflow and its willingness to further internationalize the renminbi. An additional restriction is that the relevant companies may not use the funds for securities investment, financial derivatives, property investment of non-self usage purposes, nor entrust loans for non-member firms.

The pilot scheme first set up in the FTZ has proven successful in the eyes of regulators and will now allow RMB cash pools in China. Despite some restrictive measures implemented by regulators, this announcement will ultimately accelerate the internationalization of the RMB and welcomed by multinationals.