The day is coming, sooner rather than later, when the Chinese yuan currency becomes a true global trading currency, a new survey by HSBC Commercial Banking shows that being prepared to do business in the renminbi gives you the edge over your rivals when trying to build trade links with China.
Just to clarify terms: "renminbi" or RMB, means "the people's currency" and it is the name given to the money used in China after the revolution in 1949 that brought the Communist Party to power.
“Yuan” is what one unit of the currency is called. Forex people tend to talk about RMB, and the closest analogy is with pound sterling – you would say 10 pounds but not say 10 sterling.
China’s trade in goods is growing strongly, exceeding $4 trillion (€3 trillion) last year to overtake the US as the world’s largest trading nation.
The IMF's projections for nominal dollar GDP show that China will add about $850 billion (€631.5 billion) to global demand this year, which is the equivalent of adding an economy the size of Indonesia to global trade flows.
France and Germany are the two biggest users of renminbi, outside of greater China, while 32 per cent of companies who don't use the RMB expect to in the future.
Half of respondents from Singapore, 44 per cent from the United States and 42 per cent from the United Kingdom said they believe renminbi usage brings financial benefits, yet fewer than a third of their German and Canadian peers share this view.
And more than half of respondents in the United Arab Emirates see business relationship benefits from adopting the yuan, compared with 46 per cent in France and 40 per cent in Australia.
Foreign exchange risk
“Most Chinese businesses look favourably on overseas partners who are using RMB, both because it shows commitment and because it eliminates foreign exchange risk from their cost base,” said HSBC Commercial Banking chief executive
“Although a currency can’t guarantee commercial success in China, it’s clear that RMB should be a core component of every company’s business planning.”
HSBC forecasts that a third of China’s trade will be settled in RMB by 2015 and that the currency will be fully convertible by 2017.
Overall, 59 per cent of decision-makers surveyed by Nielsen said they plan to increase their cross-border activity with mainland China over the next 12 months, rising to 86 per cent in Britain, 74 per cent in Canada, 73 per cent in the UAE and 63 per cent in France. At the same time, only 22 per cent said their company currently settles business in renminbi.