Cross-border RMB settlement developing rapidly

Edited and Translated by People's Daily Online

At least 40 percent of the China-South Africa trade, worth 100 billion U.S. dollars, will be settled in RMB by 2015 as RMB internationalization is advancing steadily, according to the latest research report released by Standard Bank in South Africa.

The volume is nearly equal to the total China-Africa trade in 2010. The report also showed that during the same period, Chinese investments in Africa, worth at least 10 billion U.S. dollars, would also be based on RMB settlement.

The scale of cross-boarder RMB trade settlement is expanding rapidly in Africa, Southeast Asia and Latin America during recent years. Local financial institutions have played a critical role in promoting RMB internationalization and the application of the RMB in these regions

Cross-border RMB trade settlement has expanded from Hong Kong and Macao to the world

Over the past year and a half, cross-border RMB trade settlement developed rapidly. According to statistics from Standard Chartered Bank, cross-border trade RMB settlement reached 510 billion yuan by the end of 2010. Cross-border trade RMB settlement businesses are gradually expanding from Hong Kong, Macao and ASEAN to the whole world.

Africa enjoys the most significant development in terms of cross-border trade RMB settlement. The number of qualified African enterprises capable of conducting cross-border trade RMB settlement has increased from 400 to the 67,300, while an increasing number of industries are involved and the settlement scope continues to expand.

The currency management authorities of several countries are still optimistic about the prospects of RMB internationalization as well as the development of RMB services there and are closely watching and actively studying how to take the advantage of the trend. A senior officer from the African Division of Standard Chartered China said that using the "currency of a third party" in the settlements of trade between Africa and China comes with two issues: One is foreign exchange risks, and the other is higher transaction costs. After cooperation between China and Africa is accelerated, the RMB trade settlement services will offer a more direct solution at a lower cost.

Overseas financial institutions active in launching RMB services

Given the accelerated RMB internationalization, many overseas financial institutions have followed the trend and launched RMB services.

Standard Chartered is one of the first groups of international banks that have launched cross-border RMB trade settlement services for pilot Chinese enterprises and is also the first bank to offer RMB settlement services in Africa. Standard Chartered’s RMB services are available at 13 out of 14 African countries where it has branches, including South Africa, Kenya, Nigeria and Zimbabwe. The bank believes that more and more local enterprises will benefit from its RMB services and the cross-border RMB trade settlements will provide African financial institutions with a more extensive service platform.

The RMB is widely welcomed in ASEAN countries and has been regarded as a hard currency. It is no only financial institutions that are optimistic about RMB business, but also private currency exchange agencies in cities of ASEAN countries have RMB-to-local-currency exchange businesses. Reporters learned from the Bangkok branch of the Bank of China that it is putting more efforts to promote and expand RMB businesses.

Thailand’s Kasikorn Bank has also opened comprehensive RMB financial businesses. Now that the trade between China and ASEAN is expanding, the RMB is becoming increasingly important in the region. Therefore, Kasikorn Bank has suggested that Thai importers and exporters should consider replacing the dollar, which has a highly floating exchange rate and is likely to continue devaluation, with the RMB as the main trade settlement currency when they do business with China.

In Latin America, the People's Bank of China signed a bilateral currency swap agreement worth 70 billion yuan with the Argentine Central Bank in 2009. The officials of the Argentine Central Bank compared the agreement to the country's "airbag." They believed that the guarantee of RMB would help Argentina to consolidate its financial status.