Friday, June 17, 2011

China's Renminbi: Growing clout of a currency

IN the next three to five years the Chinese renminbi (RMB) could become the global reserve currency, especially if the Chinese government pilot programs in RMB cross-border trade settlements are expanded right across the country, says HSBC's head of trade and supply chain, Andrew Skinner.

According to a China-first survey by HSBC of 1300 companies in 18 leading Chinese cities, 80 per cent of businesses not conducting their cross-border trade in RMB are planning to do so.

Unfortunately, Australian business lags behind when it comes to conducting business in RMB, with a recent trade confidence survey indicating just 6 per cent of Australian traders expect to use the RMB to settle trade in the next six months.

However, the RMB has emerged as a top-three trade settlement currency in the next six months among traders overall, led by traders in greater China, the Middle East and Southeast Asia, overtaking the pound sterling for the first time.

The HSBC Trade Confidence Index is the world's largest trade confidence survey, covering 21 markets, including key economies in the Asia-Pacific region, Middle East and North Africa, Latin America, North America and Europe. The latest survey comprises six-month views of 6390 exporters, importers and traders from small and mid-market enterprises.

"Companies need to look at the investment opportunities when they deal in RMB," Skinner says. "Australian businesses will make fundamental gains simply because they will be saving 5 to 7 per cent in foreign exchange costs.

"Furthermore, there's the diversification issue -- with more Chinese companies dealing in RMB, Australian businesses will have more choice." (read more)