The Evolving Renminbi: A Treasury Management Currency Contender
As China’s currency internationalisation plans continue, the
ongoing expansion and development of the renminbi is seeing it mature from a
trade settlement currency into a treasury management currency, especially for
multinational corporates (MNCs). The speed of change means corporates must
ensure they’re prepared internally for the currency’s upcoming role.
The RMB has already come a long way. Since its path to internationalisation
began in 2009, the currency has become increasingly flexible. Current accounts
have been liberalised, and the RMB can now be used as an investment currency
offshore via investment options such as ‘dim sum’ (RMB-denominated) bonds, and
onshore via the Qualified Foreign Institutional Investor (QFII) and Renminbi
Qualified Foreign Institutional Investor (RQFII) programmes. The currency has
of the world’s top 10 most traded currencies in 2013
advancements were made by the People’s Bank of China (PBoC) in July, when two
pilot programmes – the cross-border inter-company loan scheme and the
simplified RMB cross-border payment scheme (SRCP) – were extended across the
whole of China, vastly improving the ability of mainland corporates to
undertake RMB cross-border transactions.
The enhanced treasury
management conditions created by these developments are incentives for
corporate treasurers to realise the
benefits of transacting in RMB. In
addition, as the currency makes further steps towards becoming a full treasury
management currency, the benefits of centralising such activities through a
corporate’s treasury function should also be considered. Certainly, the
centralisation and standardisation of accounts and processes can create cost
and time efficiencies, while increasing risk management control throughout the
cross-border supply chain – in areas such as currency conversion, foreign
exchange (FX) hedging, trade finance and debt capital market funding.
It is widely acknowledged that the currency’s progress, thus far, is merely
the tip of the iceberg, and that transacting in RMB will become commonplace as
the roll-out of internationalisation developments continues. As the RMB’s
future takes shape, it is vital that corporates partner with a bank that is
RMB-prepared; well-positioned with the latest RMB solutions, and proactive in
monitoring and anticipating the development of the currency used by the world’s
second largest economy and largest exporter.
Leading the Way
with the Renminbi
Despite ongoing liberalisation plans and
the increasing confidence in – and international acceptance of – the RMB,
initial take-up by corporates can be impeded due to inexperience with using the
currency. Understandably, companies may be reluctant to step away from more
familiar US dollar (USD) and euro-denominated transactions, and into the
unchartered territory of RMB. Yet with RMB-based trade set to increase both in
volume and value – it is expected that
third of Chinese trade will be settled in RMB by 2015
– there is a clear
rationale for RMB adoption.
Indeed, trading in RMB allows MNCs to
widen their customer base to include Chinese companies that may have been
previously inaccessible due to an unwillingness or inability to transact in a
foreign currency. Furthermore, typical cost reductions of two to three per cent
can be negotiated, due to businesses in China factoring into the price the
omission of hedging costs, and passing this saving on to their counterparty.
That said, in order to realise such pricing opportunities,
corporates must closely correspond with their buyers or suppliers and ensure
that the right questions are asked. If corporates simply request a dual
quotation, Chinese suppliers may directly convert the USD pricing into RMB,
which would fail to factor in the cost saving.
point to bear in mind with RMB transactions is the risk of internal foreign
exchange (FX) complications due to there being two RMB currencies with
different exchange rates – the pegged onshore Renminbi, and the floating
offshore Renminbi. Because the valuation of RMB for FX bookings must be made
with one internal booking rate for accounting purposes, corporates need to have
close involvement with their onshore and offshore auditors.
However, these issues are part of the natural progression of any new
currency, and should not deter MNCs from developing and implementing a RMB
treasury strategy, given the potential benefits.
to Renminbi; Commitment to Clients
Indeed, while it is
generally accepted and understood that corporates can benefit from using the
RMB, the crucial issue is how. As it advances towards becoming a full treasury
management currency, embracing the currency – and including it in centralised
treasury functions – is an important, practical measure for business growth. It
is therefore critical that corporates engage with their banking partners
regarding their practical RMB approach in order to successfully implement
There are four key banking components that
demonstrate a true commitment to helping corporate treasurers understand and
develop their use of the currency. First and foremost is maintaining a position
at the forefront of RMB developments, both in China and abroad. This knowledge
can then be used by banks to provide up-to-date treasury solutions that evolve
alongside the currency.
Yet understanding regulatory changes and
updating banking products is not enough. In order for corporates to seize the
opportunities presented throughout this currency migration, and to advance
their RMB business from the offset, banks must share their expertise: the
second key component.
A third differentiator is offering a holistic
suite of cash, trade and FX products and services across the Renminbi spectrum
that are seamlessly integrated, and providing clients with one-stop,
streamlined access to practical advice and assistance.
with the final component of an established global markets footprint (and
resulting experience), these factors form the basis of prosperous relationships
that can grow in tandem with the Renminbi itself. The role of banks is to help
corporate treasurers understand the advantages of using the RMB, and then
provide full support and guidance for their RMB transaction needs across the
With such global needs in mind, Deutsche Bank’s end-to-end
services – encompassing a broad range of RMB solutions, from onshore and
offshore accounts to trade finance services – can be leveraged no matter where
corporates or institutions, or their accounts, are located. Indeed, the bank’s
FX4Cash facility – a multi-currency solution that converts inbound RMB
automatically into another specified currency using live market rates – means
that clients don’t even need to hold a RMB account at all. Certainly, at this
stage in the currency’s development, banks must prove their ability to ease
clients’ transition to using the RMB.
While the plethora of changes
inherent to the internationalisation of the RMB might create initial
challenges, it is clear that MNCs able to leverage such source of expertise
will be best positioned to make the most of both current and upcoming
opportunities, and to join the currency on its path to a very bright future.