Friday, January 9, 2015

You can now sell Chinese Bonds ("Dim Sum" bonds) from The Bahamas


Mr. Gilbert Morris
By Gilbert Morris

In the last 10 years, I have suggested:

a. That we have no financial centre, we are just a jurisdiction that offers some financial services, which are not coordinated (there is no Bahamas package), nor are they strategic, and we have not developed a legitimate or elegant means of defending even what we have.

b. I have argued for a reform of Bank of The Bahamas with a final phase being the JV with a Chinese Bank, where Bahamian Development Bonds could be offered to the Chinese Market, as a means of developing and extending a commercial paper market in The Bahamas; and so providing Bahamian business people access to credit beyond our plantation banking system. (This was also my advice to BVI and Cayman).
This announcement of The Bahamas being designed as a trading hub for the Chinese Yuan (renminbi) is something which myself and others (notably Mr. Shane Stuart - a Bahamian who has run Hedge Funds in Hong Kong for 20 years), have been suggesting for some time now.

It is NOT true that The Bahamas are amongst a very few nations selected. This is a Chinese Policy, not a Bahamian one. We did not go to them in 2005, as we should have (when I spoke with certain persons), to get a jump as the 3rd jurisdiction beyond Hong Kong and Singapore. This policy is part of the Chinese rightful rejection of the Bush administration's attempt to force Chinese currency re-valuation, and now China is embarking on a road to making the Yuan a global reserve currency. This "hub" status has been extended to Qatar; to Sydney, Australia 3 years ago; to Toronto and Paris, London and Frankfurt are already designated. The Bahamas are the first in the Caribbean Basin. (But think, given the relationships between Cuba and China and the coming Cuba demand for manufactured resources, Cuba is likely to be quite competitive in this area).

As such, 'hub' status is not a championship belt for The Bahamas. It puts us in a global race; which when we have had such opportunities we have wilted. You can obtain a hub status with nothing following up it. Now the question is: do we have the mind and the muscle to make something of the opportunity?

This therefore is the very worst time for Bank of The Bahamas to be in such a hellish state; since - depending on how the deal is written - The Bahamas will need a Yuan Clearing House in The Bahamas. Also, now would have been the time for BOB to establish a presence in China in a JV with a great Chinese Bank, such as China Industrial Bank or Commercial Bank of China or Bank of China. One has to observe the two way benefit independently: China will offer that trade finance can cover trade deals in Yuan deals, end-to-end. All payments and interest can be denominated in Yuan. This can reduce the costs of buy from China by 5-10% (Shane Stuart has a firm that facilities strategic purchases of credible Chinese products; since as a fund manager, he invested in the best Chinese firms).

You can now sell Chinese Bonds ("Dim Sum" bonds) from the Bahamas, and so it can diversify the financial services offerings (At least until some mediocrity from the CFATF tells us it is criminal and we capitulate before we understand). It means that firms trading in The Bahamas are better positioned to trade in Yuan with other Yuan hubs. (Honestly, Cayman and Bermuda, with their national banks are positioned better for this opportunity). So it is clear that China will benefit from this arrangement. The Bahamas can only benefit IF IT HAS A PLAN, since the Chinese will offer hub status to any nation in its drive to become a global reserve currency.

Having said all of that: This is the most significant move in 30 years in financial services for The Bahamas...but what is the plan?

Gilbert Morris - Facebook