In the current economic climate, the RMB remains well-placed to inspire confidence in the forex market, with its offshore liquidity pool expanding and the Chinese government striving to maintain the stability of its exchange rate 8.
Rather than transacting in USD – currently still the world’s most popular currency for global trade – and converting to the local currency, using just one currency (such as the RMB) would make it simpler for businesses to reduce FX risks. A poll conducted during the session revealed that more than half (55%) of audience members from over 24 countries selected the ability to reduce FX risks as their motivation to use RMB in cross-border trade.īeyond enabling Chinese businesses to avoid FX risk, the adoption of RMB can indeed help foreign firms manage FX risk better by minimising their exposure to multiple currencies. One leading reason for RMB adoption by businesses is reducing FX risks. Using RMB can reduce FX risks in cross-border trade settlement.
In fact, the People’s Bank of China estimates that overseas importers who settle in RMB can save up to 3% in such ‘hidden costs’ on their invoices 7. “If we use RMB, we don’t need to add hedging costs, and hence our customers may find that our quotations in RMB are lower,” explains Peng Zhang, Group Treasurer of Chinese telecommunications giant ZTE. This is because when dealing with foreign currencies, Chinese corporates typically factor in financing costs to hedge against unfavourable FX rates. Trading in RMB offers cost-saving opportunities.įor businesses importing from China, using RMB for cross-border settlements is easier than ever, and can result in significant cost reduction. Here’s our breakdown of six key benefits: Key opportunities for businesses using the RMB and e-CNY 1. And as China explores cross-border payments in e-CNY 6, it has the potential to revolutionise the simplicity and speed of global businesses’ transactions with China.Īll in all, these game-changers spell exciting opportunities for businesses choosing to adopt the RMB and e-CNY for trade financing and cross-border payments. The first of its kind by a major economy, this central bank digital currency (CBDC) looks primed to take centre stage in China’s digital economy. But at the same time, China will have an alternative system with other parts of the world, which can hedge potential risk from any happenings in the US system.”Īnother dimension of this game change is reflected in China’s ongoing rollout of the digital Yuan or e-CNY. “Instead, I believe there will be two systems… The US system will remain and China can use it. “That is a zero-sum mentality,” he clarifies. Going forward, Leung predicts that the Chinese dollar will not outright replace the US dollar as a global currency. “This is driving more and more countries to think about diversifying their reserves away from the USD, and to look to China as an alternative currency to hedge risk,” he explains. In his opening remarks at the webinar, DBS Executive Director and Chief China Economist Chris Leung pinpoints a “game change” triggered by the US’ unprecedented sanctions against Russian financial institutions. China’s rise as an economic powerĪmidst the turmoil of the Russia-Ukraine crisis, 2022 marks a turning point for the RMB. In this article, we break down key insights into the RMB’s rise and digitalisation, particularly how using the RMB and digital Yuan can benefit global businesses in increasingly uncertain times. To explore how businesses can leverage these trends, DBS, in partnership with The Asset, organised a webinar with treasury leaders from, AIA, ZTE, and DBS. These trends render the RMB increasingly attractive for trade settlement by businesses trading with corporations in China. Meanwhile, its market share as an international reserve currency reached a high of 2.61% in September 2021 5. In another sign of growing demand, the RMB rose a spot to become the fourth most active currency for global payments in December 2021 4. Long established as the key gateway for cross-border RMB flows, Hong Kong’s RMB deposits hit a record high of 1095.9 billion RMB in January 2022 thanks to corporate inflows 3. One mark of this is the offshore RMB liquidity pool’s exponential growth over the past few years, fuelled by the Chinese government’s economic reforms. While the redback has a long road to attaining global status 2 its market acceptance for cross-border trade settlement and investment is fast increasing. For forward-thinking businesses, this is a moment rich with opportunity.Ĭhina’s rise as an economic power has propelled the RMB’s internationalisation in recent years – a trend that remains promising even as China targets slower GDP growth in 2022 1.
As global demand for renminbi (RMB) use rises and China rolls out its digital Yuan, otherwise known as the e-CNY or digital RMB, the world has reached a watershed moment.
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