Concerns continue to mount about the eurozone, and USD liquidity, but could the renminbi be the answer?
Behind the scenes at this year's Sibos conference in Toronto, regulation is taking a back seat to concerns around the future of the eurozone, USD liquidity and the renminbi's inevitable rise at the expense of the US dollar.While regulation continues to dominate a lot of the official debate at this year's Sibos conference in Toronto, behind the scenes there is a lot of concern about the eurozone crisis and particular banks' exposure to European sovereign debt. As one eurozone bank said to me, "I am more worried about the eurozone than regulation."
With the newspaper headlines this week highlighting that concerns about financial risk in Europe are mounting, a lot of the backroom talk here at Sibos is around giving banks access to USD liquidity. Banks like Bank of America Merrill Lynch, that are long in USD liquidity are having discussions with banks that are short in US dollars.
Ashutosh Kumar, managing director & global head of Corporate Cash and Trade, Standard Chartered, says some banks are having problems swapping euros into US dollars. Concerns about volatility in the euro and US dollars is also giving further fuel to the debate about the rise of the renminbi (RMB) as an international reserve currency. A number of banks I spoke to believe RMB will be a reserve currency within five years and the current economies woes within the eurozone and the US are helping it on its way.
According to Standard Chartered, RMB is now 10% of China's trade. Ramaswamy Madhavan, managing director, global head, product management, banks, Standard Chartered, says one European bank asked him why companies were still invoicing in US dollars from a trade perspective. " I expect to see a big increase in transactions being invoiced in renminbi when contracts are next up for renewal," says Madhavan. With the ongoing uncertainty surrounding the euro, he says companies are unlikely to switch from dollars into euros.
He pointed to the example of Nigeria's central bank, which recently announced that it would switch 10% of its reserves to renminbi thereby reducing its over-reliance on the dollar. There is also a growing appetite for Dim Sum or RMB-denominated bonds among companies like BP and Tesco.
Date Posted:23rd September 2011