Despite still being under tight control, China’s currency is already at the forefront of global trade. Exporters and importers around the world see it as a top three currency for trade, according to HSBC’s Trade Confidence Index 2011, behind only the US dollar and the Euro.
Interest in the renminbi (RMB) has gathered pace largely due to its expected liberalisation and more approvals handed out by Beijing to mainland counterparties, according to Chris Lewis, HSBC’s head of trade and supply chain for Greater China.
“If you go back nearly two years ago when the RMB cross-border trade proposition was launched it only included 365 mainland designated enterprises [MDEs]… and only five [provinces],” said Lewis. “Over the past two years, the breadth of the proposition has grown so that now it’s covering virtually every major municipality and province in China.”
“They’ve increased the number of MDEs to nearly 68,000, so there’s a wider selection of counterparties to deal with and a far wider selection of the country,” he added.
Increased education about the currency among market participants and its expected liberalisation is also fuelling interest in its use for trade settlement, according to Lewis. The survey this year saw real interest in trade settlement using the renminbi from respondents in the Middle East and North Africa, as well as India; regions which had exhibited virtually zero interest in it last year, he said.
But the surge in interest in the currency has not led to growth in trade volumes yet.
“At the moment it’s more of a substitution rather than new trade,” he said, meaning that trades settled in other currencies are now being settled in renminbi instead. “But it’s gaining momentum… and when the renminbi becomes fully convertible it’ll go the same route as the euro did.”
While a lack of local regulatory approval in some countries still prevents renminbi being used as a trade settlement currency for many counterparties, Lewis doesn’t believe this is due to any country being particularly uncomfortable about it. He stresses ongoing education worldwide on the renminbi, how it works, and its many associated trade opportunities.