Rise in renminbi cross-border trades reduces dependence on US$
PETALING JAYA: Renminbi cross-border trades are expected to increase in the next few years as its usage expands in line with China’s aim to internationalise the currency and the growing intra-regional trade between China and Asean.
Some trade pundits believe that in five years, renminbi contracts may represent 50% of China’s trade with Hong Kong, which amounted to US$204bil last year, and up to 30% of the US$230bil trade between China and Asean countries.
First, reducing dependence on the US dollar is prudent in the aftermath of the global financial crisis, given that the long-term stability of the dollar is being threatened by rising fiscal deficits and government indebtedness.
This is compounded by a sizeable and long-standing trade and current account deficit in the US economy.
Second, there could be cost-savings for Malaysian and Chinese exporters and importers, as a stable currency for invoicing trade and business transactions results in lower currency conversion and hedging costs.
Third, companies could save in transaction and translation costs from not having to hold US dollars.
Fourth, the initial steps to allow the use of renminbi for trade invoicing can be seen as part of the gradual process towards the internationalisation of the currency.
“In the absence of a world currency, the ascendence of the renminbi will contribute to a more balanced international financial architecture as opposed to the current one which is dominated by the US dollar,” Yeah said.
To facilitate renminbi cross-border trades, China has launched a pilot programme in July 2009 to allow settlement of such trades between mainland China and Hong Kong, Macau and Asean in the currency on a trial basis.
The programme is restricted to a select list of approved mainland designated entities, and allows selected exporters and importers in five Chinese cities to settle cross-border trade deals in renminbi.
The South China Morning Post reported last month that the programme would be expanded to 20 provinces from the current two and permit the use of renminbi in transactions with any country.
In February last year, the People’s Bank of China and Bank Negara had agreed on a RM40bil (80 billion renminbi) three-year currency swap to allow exporters to settle some of their trades in the two currencies.
Since mid-January this year, the renminbi has appreciated by 0.7% against the US dollar and 12.5% against the euro but depreciated by 3% against the yen and 4.2% against the ringgit.
In bilateral trade, the country with a weaker currency gains price competitiveness.
“More importantly, since the outbreak of the global financial crisis in September 2008, the renminbi has recorded the lowest volatility compared with other hard currencies – the US dollar, euro and yen.
“Empirical studies have shown that currency stability facilitates cross-country trade and investment,” Yeah said.
Standard Chartered Bank (M) Bhd head of transaction banking for Malaysia Yong Lee Boon said the renminbi was expected to appreciate gradually as it had recently been allowed to float in line with a trade-weighted basket of currencies.
“This deregulation could expose exporters and importers to the risk of an appreciating renminbi, and escalate the need for cross-border settlement schemes,” she said.
Yong said that in the initial stage, clients were looking for basic renminbi transaction services including current accounts, telegraphic transfer and trade letters of credit.
“As the adoption and usage of renminbi in Asean markets increase, we expect the cross-border trades to be increasingly popular.
“At the same time, the markets will demand products and services that are more sophisticated in nature in this currency,” she said.
StanChart’s renminbi trade settlement services include two-way currency exchange, remittance and trade settlement and finance services; as well as renminbi deposit accounts.
HSBC Bank Malaysia Bhd deputy managing director (commercial banking and director sales) Thomas Varughese said since the launch of HSBC’s renminbi trade settlement capabilities, customers have shown keen interest in the scheme.
“We are seeing positive developments where demand for renminbi trade settlement is picking up,” he said.
He expects the utilisation of renminbi cross-border trades to increase in view of the growth in intra-regional trade between China and Asean.
In the recently-unveiled HSBC Trade Confidence Index, the percentage of Malaysian exporters and importers continuing to actively trade with the rest of Asia grew by a massive 45% to 93%.
Furthermore, 86% of the respondents also continue to trade with Greater China, up from 55% previously.
HSBC Malaysia offers a wide range of renminbi trade settlement such as documentary credits, collection bills, renminbi accounts and telegraphic transfers.
By ELAINE ANG
elaine@thestar.com.my
Some trade pundits believe that in five years, renminbi contracts may represent 50% of China’s trade with Hong Kong, which amounted to US$204bil last year, and up to 30% of the US$230bil trade between China and Asean countries.Currently, almost all the trade flows with Asean is denominated in US dollars.
RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said as the world’s largest exporter and second-largest economy, China’s move to promote the use of renminbi in its cross-border trades was viewed positively.
First, reducing dependence on the US dollar is prudent in the aftermath of the global financial crisis, given that the long-term stability of the dollar is being threatened by rising fiscal deficits and government indebtedness.
This is compounded by a sizeable and long-standing trade and current account deficit in the US economy.
Second, there could be cost-savings for Malaysian and Chinese exporters and importers, as a stable currency for invoicing trade and business transactions results in lower currency conversion and hedging costs.
Third, companies could save in transaction and translation costs from not having to hold US dollars.
Fourth, the initial steps to allow the use of renminbi for trade invoicing can be seen as part of the gradual process towards the internationalisation of the currency.
“In the absence of a world currency, the ascendence of the renminbi will contribute to a more balanced international financial architecture as opposed to the current one which is dominated by the US dollar,” Yeah said.
To facilitate renminbi cross-border trades, China has launched a pilot programme in July 2009 to allow settlement of such trades between mainland China and Hong Kong, Macau and Asean in the currency on a trial basis.
The programme is restricted to a select list of approved mainland designated entities, and allows selected exporters and importers in five Chinese cities to settle cross-border trade deals in renminbi.
The South China Morning Post reported last month that the programme would be expanded to 20 provinces from the current two and permit the use of renminbi in transactions with any country.
In February last year, the People’s Bank of China and Bank Negara had agreed on a RM40bil (80 billion renminbi) three-year currency swap to allow exporters to settle some of their trades in the two currencies.
Since mid-January this year, the renminbi has appreciated by 0.7% against the US dollar and 12.5% against the euro but depreciated by 3% against the yen and 4.2% against the ringgit.
In bilateral trade, the country with a weaker currency gains price competitiveness.
“More importantly, since the outbreak of the global financial crisis in September 2008, the renminbi has recorded the lowest volatility compared with other hard currencies – the US dollar, euro and yen.
“Empirical studies have shown that currency stability facilitates cross-country trade and investment,” Yeah said.
Standard Chartered Bank (M) Bhd head of transaction banking for Malaysia Yong Lee Boon said the renminbi was expected to appreciate gradually as it had recently been allowed to float in line with a trade-weighted basket of currencies.
“This deregulation could expose exporters and importers to the risk of an appreciating renminbi, and escalate the need for cross-border settlement schemes,” she said.
Yong said that in the initial stage, clients were looking for basic renminbi transaction services including current accounts, telegraphic transfer and trade letters of credit.
“As the adoption and usage of renminbi in Asean markets increase, we expect the cross-border trades to be increasingly popular.
“At the same time, the markets will demand products and services that are more sophisticated in nature in this currency,” she said.
StanChart’s renminbi trade settlement services include two-way currency exchange, remittance and trade settlement and finance services; as well as renminbi deposit accounts.
HSBC Bank Malaysia Bhd deputy managing director (commercial banking and director sales) Thomas Varughese said since the launch of HSBC’s renminbi trade settlement capabilities, customers have shown keen interest in the scheme.
“We are seeing positive developments where demand for renminbi trade settlement is picking up,” he said.
He expects the utilisation of renminbi cross-border trades to increase in view of the growth in intra-regional trade between China and Asean.
In the recently-unveiled HSBC Trade Confidence Index, the percentage of Malaysian exporters and importers continuing to actively trade with the rest of Asia grew by a massive 45% to 93%.
Furthermore, 86% of the respondents also continue to trade with Greater China, up from 55% previously.
HSBC Malaysia offers a wide range of renminbi trade settlement such as documentary credits, collection bills, renminbi accounts and telegraphic transfers.
By ELAINE ANG
elaine@thestar.com.my
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