Settling trade in renminbi

The move once again raises the idea of future world trade being conducted in RMB.

It also highlights the mismatch between China’s role as a major international trader and the minimal amount of trade settled in its currency.

Until now, RMB settlements have been restricted to a select few places in China trading with organisations in a limited number of countries.

Opening up

Now, Chinese state media have reported that China will no longer restrict countries in which cross-border trade can be settled in RMB.

At the World SME Expo in Hong Kong late last year, a series of speakers raised the idea of increasing numbers of world trade transactions being settled in RMB in the future.

Ng Moon Kwee, HSBC China’s head of business and commercial banking, pointed to the ‘severe mismatch’ between international use of the RMB and China’s role in the global economy.

“China is now the world’s third largest economy. It has a GDP of US$4.3 trillion. Yet, so far the RMB has been little used in international trade.

“Because of the volatility of the US dollar, more and more Chinese companies are demanding payment in RMB,” he said.

“Everyone knows China is a good place to do business and everyone wants a piece of the action.”

Esmond Lee, executive director financial infrastructure, for the Hong Kong Monetary Authority, predicted a future in which the RMB will become more internationalised.

“Some people think, in the future, the main world currencies will be the US dollar, the Euro and the RMB.”

Dr Kevin Lau, president of the Hong Kong Chamber of Small and Medium Business, warned that ‘proper RMB settlement’ is needed to ‘cut out the need for companies to use underground banks and to eliminate associated risks’.

Chris Mouat, the ANZ National Bank’s head of Asia - New Zealand relationship management, describes the amount of international trade currently settled in RMB as ‘infinitesimal’. 

“It would be in the millions of US dollars per month compared with the around US$200 billion a month that China currently does in international trade.

“Even then, it wouldn’t be a very high number in the millions, probably constituting only a tiny percentage of total international trade settlements. It’s neither here nor there.”

In July last year, Chinese regulators rolled out a pilot scheme permitting RMB settlements in Shanghai and four of the main trading cities in southern China: Zhuhai, Dongguan, Guangzhou and Shenzhen.