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Asian trade vital for renminbi internationalisation

24 Feb 2012

The Chinese government needs to encourage the use of renminbi for payments by other Asian countries if it wants the currency to reach the same level of internationalisation of the Japanese yen, says SWIFT.

New figures from electronics payments service SWIFT reveal that the Chinese renminbi has a long way to go before it will rival the international use of the Japanese yen.

In December 2011, only 21% of the banks and 51% of the countries that sent cross-currency payments to China and Hong Kong used the renminbi to do so. For the yen these figures stood at 96% and 99% respectively, said SWIFT.

The figures reveal that the Chinese government must continue to promote more use of the renminbi within Asia if it wants the currency’s internationalisation to spread.

“In the 1980s the Japanese government stated its attempt to internationalise the yen. In the early 2000s it became clear that to further this, the use of the currency by other Asia nations was important,” said Lisa O’Connor, SWIFT’s initiative director of RMB internationalisation. “The breakdown of regulatory barriers and integration with Asia was a key development.”

China has currency swap agreements in place with 14 countries of which 10 are in Asia: Hong Kong, Indonesia, Japan, Kazakhstan, Malaysia, Pakistan, Singapore, South Korea, Thailand, Turkey and Uzbekistan.

SWIFT also says there is great potential to switch from US dollar to renminbi payments if the yen comparison is followed.

Its data on customer initiated and institutional payments sent and received—as a proxy for trade imports and exports—show that 2.5% of those payments between China and Hong Kong and the rest of the world are denominated in renminbi, while 65% was in US dollars and 8% in yen.

In comparison 71% of the payments between Japan and the rest of the world was in yen, 21% was in US dollars, and 0.1% was in renminbi).

SWIFT anticipates that renminbi-denominated payments will continue to grow, but at a slower pace than before.

“We expect positive growth in the renminbi in terms of trade and also perhaps through things like dim sum bonds,” said O’Connor. The biggest question is how fast this growth will be. The pace has been very rapid and it will continue to grow but not as rapidly.”

“At the moment the renminbi is in a position of catch up. It is being used in trade more and more and at some point we will see a shift, what that will be to or from is the trillion dollar questions and will be defining factor for the capital markets.”

SWIFT data shows that the Chinese renminbi is growing faster than any other payment currency globally. By the end of 2011 it was the 17th most used payment currency, experiencing a monthly compound growth rate of 14.8% compared to 0.7% for all other currencies.

In January the renminbi fell back to 20th place, but this is attributed to the Chinese New Year holiday.

24 Feb 2012