Strategic Intelligence for CFOs, Finance Directors, Controllers and Treasurers in Asia  | 
2012, May 24

What Should Your Company Do About the Renminbi?

Home > Features > What Should Your Company Do About the Renminbi?
Features

What Should Your Company Do About the Renminbi?

by Cesar Bacani, 05 September 2011
topics:
Management Risk Management
tags:
dollar euro foreign exchange international currency renminbi SWIFT Swiss franc trade payments yen

If there’s anything you want to know about the renminbi’s emergence as an international currency, the man to ask is Wim Raymaekers (pictured), Head of Banking Market at the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The Brussels-based specialist can extract information from the messages that the world’s banks send to each other.

 
His on-the-ground readings are throwing up some surprising findings. Since October last year, Raymaekers has noticed a surge in the number and size of renminbi-denominated banking instructions related mostly to payments, and significant upward movement in trade finance, securities and foreign-exchange transactions.
 
“From October last year to June this year, we saw 33% month-on-month growth,” he told CFO Innovation. “That’s a ten-fold increase from October to June.” To be sure, the rise is from a low base, but it is enough to catapult the renminbi to 18th place in the ranking of the most used currencies in world payments. The RMB was in 35th place in October.
 
So far, more than 900 banks in 70 countries have started using the RMB amongst themselves, “an indication of the internationalization of China’s currency,” says Raymaekers. The renminbi is already significantly used in some countries, among them Thailand, Philippines, United Arab Emirates and Qatar. “Sixty percent to more than 90% of the value of payments [that go through the SWIFT system] in the last two countries is in renminbi,” says Raymaekers. 
 
Corporate Challenges
The trend poses significant implications for Asia’s CFOs and treasurers. If they pay for Chinese products in renminbi and in turn accept the RMB for their own products, their company will end up with a stash of China’s currency. That’s not necessarily a bad thing if the renminbi continues to strengthen against the dollar. So far this year, it is up 3.6% against the greenback.
 
But they also become exposed to a currency that is convertible on the trade account (the RMB as medium of exchange) but, unlike the dollar, euro and yen, not convertible on the capital account (the RMB as a store of wealth). This means that corporate treasuries need to go through complicated contortions to change excess renminbi into another currency and park it in short-term Treasury bills, for example, or to fund an M&A transaction.
 
Without difficult-to-get permission, companies cannot even bring back to China the renminbi they raised offshore – the proceeds of trade with Chinese counterparties, perhaps, or money from issuing so-called RMB-denominated dim-sum bonds in Hong Kong. “You can do it, but you are limited in terms of the sectors you can do and the amount you can do it in,” says Raymaekers.
 
But a quicker way may be emerging to optimize the value of excess RMB holdings in the form of foreign exchange trades not involving China (or Hong Kong, whose efforts to become an offshore RMB centre are backed by the Chinese). Raymaekers reports that 43% of all RMB foreign exchange trades today do not touch China or Hong Kong at all.
 
“That’s truly offshore FX,” says Raymaekers. The UK accounts for the largest portion of those FX trades, with the US a smaller player. If these volumes continue to grow, companies may be able to freely convert their excess renminbi into other currencies, up to a point, even though China moves at a glacial pace in liberalizing RMB convertibility on the capital account.
 
Buying and Selling
On trade, at least, companies should be encountering fewer problems. On a visit to Hong Kong last month, Vice Premier Li Keqiang, who is widely seen as China’s next premier, announced that companies across all of China can now settle trades in renminbi, not just in 20 provinces as previously.   
 
123next ›last »


Related articles

Comment on this article

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd> <a> <p> <span> <div> <h1> <h2> <h3> <h4> <h5> <h6> <img> <img /> <map> <area> <hr> <br> <br /> <ul> <ol> <li> <dl> <dt> <dd> <table> <tr> <td> <em> <b> <u> <i> <strong> <font> <del> <ins> <sub> <sup> <quote> <blockquote> <pre> <address> <code> <cite> <embed> <object> <strike> <caption>
  • Lines and paragraphs break automatically.
  • Use <!--pagebreak--> to create page breaks.

More information about formatting options

Verification Code
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

Accounting and Regulations

CFO innovation Asia Accounting and Regulation the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Accounting Regulation, IFRS, US GAAP, Tax, investor relations, corporate governance, Corporate Law, Financial Regulators, Internal Audit, Audit, Corporate Law.
Auditing, Investor Relations, Law and Compliance, Tax

Finance and Banking

CFO innovation Asia, Finance and Banking the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Corporate Finance, trade finance, treasury and risk management, capital expenditure, Banking, mergers and acquisitions
Cash and Liquidity Management, Corporate Finance, Insurance, Treasury Management

Management

CFO innovation Asia the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Management, Corporate Governance, Human Resource Management, Compensation and Benefits, Mergers and Acquisitions, Professional Development, Corporate Real Estate, Risk Management, Budgeting and Forecasting, Business Process Management, Business Process Reengineering, Outsourcing.
Budgeting and Planning, Business Expense Management, Human Capital Management, Outsourcing and Shared Services, Risk Management

Metrics

Corporates, Financial Services

Technology

CFO innovation Asia Technology the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Systems, Business Intelligence, EPR, Accounting software, CRM, Cloud Computing, Telecommunications, Business Process Outsourcing, Business Process Management Software.
Business Intelligence, Enterprise Software and Systems, Financial Systems, Security