Cash Management

Increasingly the renminbi is viewed across the world as a viable third trading currency, and a challenger to the US dollar and euro as the settlement currency of choice:  in fact HSBC forecasts that by 2015 over half of Chinese trade with emerging markets (approximately USD 2 trillion) will be settled in RMB.

 

European businesses have witnessed this growth, and its inherent opportunities, with interest. Recent HSBC ‘Doing Business in China’ events in Poland and Turkey have demonstrated a real appetite from businesses to adapt and exploit RMB as a working currency. Now offering RMB settlement facilities in more than 40 countries, HSBC has facilitated RMB transactions in several countries across Europe including France, Germany, Russia, Turkey, Poland and the Czech Republic, helping local businesses use RMB to maximise the potential of their products and services. The rise of the RMB has been fast - it was only in 2010 when the Chinese government undertook a specific campaign to internationalise the currency, but it has quickly established itself as a viable option for trades and the currency has outstripped expectations, with RMB 975 billion worth of trade in China settled in renminbi in the first half of 2011 alone.

 

Certainly, the deregulation of the RMB is a huge positive for businesses day-to-day cash management. Being able to hold the proceeds of trade settlements in RMB gives a firm a natural currency hedge, but also a diversification of offshore currency holdings.The RMB could also have a potential positive impact in strengthening trading relations, as working in RMB can strengthen importers’ positions when negotiating contract terms and pricing. For exporters, trading in RMB offers their trading partners increased flexibility whilst reducing the chance of exchange rate fluctuations impacting on margins. Where both the vendor and purchaser settle in RMB, both businesses could benefit from reduced costs and transaction times.

 

Anecdotal evidence from our colleagues in HSBC China also suggests that countries outside of the eurozone, for example Turkey, currently see a strong growth in export volumes, eyeing China as a strategic trading base, and are very keen to trade directly from their own currency into the RMB. Potentially we may also see a future in which traders from two countries, neither of which use the RMB, choose to settle in the currency in a bid to benefit from reduced costs and transaction times.

 

The speed of change with regards to the RMB has been phenomenal, and yet there is no set date at which point it will become ‘fully convertible’  (free from the restrictions that it is still currently subject to). But for businesses, this means pushing ahead now with plans to become RMB-competent. As HSBC’s recently launched Trade Forecast, by 2025 China is predicted to overtake the US as the world’s top trading nation: it makes sense therefore for businesses to consider how best to maximise their trading relationships with Chinese firms and, with our international footprint and heritage in Asian markets, HSBC is ideally placed to help customers stay abreast of rapidly changing developments.

 

The RMB holds such huge potential for businesses across the globe, that for those focused on growing and cementing their international footprint, the question is not whether the currency should be considered, but when.