Strategy

More U.S. Firms Use Chinese Currency Renminbi for Deals

The RMB isn't yet a mainstream currency for cross-border transactions, but it may be in a few years.
Iris DorbianJuly 19, 2014
More U.S. Firms Use Chinese Currency Renminbi for Deals

Although U.S. companies still trail their European counterparts in using the Chinese currency renminbi for cross-border deals, the frequency has nearly doubled in the past year, according to a recent HSBC study, as reported by the publication Treasury & Risk.

RenminbiThe study polled 1,304 financial decision-makers at companies that do business in mainland China and companies in China that do business abroad. Among U.S. companies, 17% said they currently do business in RMB, a sharp increase from 9% the past year.

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French and German companies were much more likely to use RMB (26% and 23%, respectively).

“We’re seeing a lot more interest in the RMB,” Martin Brown, executive vice president and head of large corporate banking at HSBC,” told Treasury & Risk. “People are understanding more about how the renminbi trades and the liquidity.”

According to a recent release from SWIFT, a banking communications cooperative, the RMB was the “second most used currency for cross border payments with China and Hong Kong in May 2014,” although “it still represents only 1.47% of all global cross-border trade and just 12% of cross-border payments with China and Hong Kong.”

In other findings from the study, 20% of survey participants said they expect to start trading in RMB within three years. Among those respondents, 66% said using the Chinese currency will help them win more business; 55% said it will help reduce prices on goods they buy; and 61% said it will lower foreign-exchange risk. And here’s another thought-provoking tidbit: 63% said that “a trading partner has asked to transition to RMB-denominated deals.”

Nearly a third of respondents said they expect the RMB to become a “truly global” currency. That sentiment is not shared in the United States or the U.K., where just 6% and 9% of respondents, respectively, said that within five years foreign companies will start using the RMB for non-China-related transactions.

The biggest obstacle to wider use of RMB right now is concern about “documentation and other restrictions on currency exchange in China,” said Brown, according to Treasury & Risk. According to the study, 13% of participants conceded that their company has “little or no understanding of relevant issues or where to turn for information” about RMB, while 31% said they have some understanding but not enough to take any action.”

Source: To RMB, or Not to RMB

Image: Wikipedia