Global RMB trade settlement continues to rise


The global use of the RMB as a trade settlement currency is rising, and offshore payments are increasingly taking place outside Hong Kong, according to a report released Tuesday by Standard Chartered Plc. (PINK:SCBFF)

Offshore RMB-denominated bonds, or “Dim Sum” bonds, under performed their counterparts across the rest of Asia and other developing countries, the report added.

Details show that from July to August, 12.3% of China’s trade was settled in RMB, up from 10.7% in 1-H of the year.

The report noted the rise came even amid “weak global demand and slowing global trade, and without any of the initial arbitrage opportunities that may have pushed corporates to switch to RMB invoicing in the early months of the experiment”.

The report concluded that Asian and European firms are increasingly open to using RMB payments, most frequently from Singapore and London.

“We see many European and Asian clients shifting away from settlement in US dollars,” said Eddie Cheung, foreign exchange analyst at Standard Chartered in Hong Kong.

Since Q-1 of Y 2012, Europe has now overtaken Asia-Pacific, except Hong Kong and the Chinese Mainland, in the value of RMB settlements.

According to SWIFT, the international payment platform, the number of countries processing RMB payments increased to 91 in June from 65 a year earlier, while institutions processing such payments increased to 983 from 617.

Hong Kong accounted for around 80 percent of payments in the 1st 8 months of Y 2012.

RMB settlement across the Taiwan Straits has increased significantly since late Y 2011, and the imminent appointment of a settlement bank in Taipei will promote it, according to the report.

Taiwan’s RMB payment value in August ranked seventh globally, up from 57 th in July 2011. The payments now make up 24% of Taiwan’s total payment value with the mainland and Hong Kong, up from 9 percent in January. The payments increased more than 35% in August from July.

The US now ranks 4th in total RMB payments, driven by its strong trade with China, said Standard Chartered. But, just 0.3% of total US payments with Hong Kong and the Chinese mainland were made in RMB, compared with 30% of Singapore’s.

The low levels were also similar for payments made from other developed countries such as Germany, Japan and Australia.

“We expect the RMB to continue to be adopted much more readily by companies based in emerging markets, especially Asia, followed by those in Europe,” added Kelvin Lau, an economist at Standard Chartered.
Wang Yongli, vice-president of Bank of China Ltd, China’s 4th-largest commercial lender by market capitalization, said the key to floating the RMB globally lies in whether the central bank will allow a larger scale of the currency’s back flow.

Wang said that use of the RMB worldwide has been obviously increasing, but that insufficient back flow has hampered its prospects as an international currency.

“The government should put the majority of RMB clearance on the mainland instead of offshore markets,” he said.

He added that an efficient clearance system is essential for the internationalization process of the currency, and that the government should encourage inter-bank bookkeeping clearance instead of cash clearance to further promote the global use of the currency.

But while trade settlement in the RMB appears to be increasing, overall yields of the Dim Sum bond market tightened marginally in Q-3. The yield tightening was less than for Asian USD credit indices such as the JP Morgan Asia Credit Index (NYSE:JPM).

The adverse demand-supply situation has caused the Dim Sum market to under perform the Asian dollar bond markets, said Standard Chartered, and the lack of strong RMB appreciation means the situation is likely to continue for a while.

“The stagnation in RMB deposit growth in Hong Kong has clearly weakened demand for Dim Sum bonds, even while issuance has soared,” it said.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.