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‘Trading in Chinese yuan could help Korean firms’

SC Bank’s global unit chief says Renminbi is becoming popular in global trade settlements

Carmen Ling
Carmen Ling
A top foreign bank official advised Korean companies to use Renminbi, or yuan, in their trade settlements with foreign partners, stressing that the globalization of the Chinese currency is going faster than had been predicted.

“When the RMB was first set on an international course, we predicted that it would be used for 20 percent of (Chinese) cross border trade by 2015,” Carmen Ling, the global head of the RMB solutions unit of Standard Chartered Bank, told The Korea Herald in an email interview. “We are pleasantly surprised because now it is closing in on 15 percent,” she said.

China announced in 2009 that it would globalize the RMB by 2020 to play a role as a key global currency after the U.S. dollar.

Ling pointed out that Korea should find effective ways to benefit from the accelerating globalization of the RMB, since it could greatly help Korean companies that are engaged in overseas trade. About 20 percent of Korea’s trade is with China, according to data from the World Trade Organization.

She stressed that Korean companies could obtain stronger price transparency and greater control, particularly if they took advantage of RMB re-invoicing and centralized foreign exchange hedging.

“The People’s Bank of China estimates that companies could save between 2―3 percent by using the RMB for trade,” she said, encouraging Korean companies to speak with their banking partners.

One example of such a case could be a high tech company that converted its trade currency to RMB from U.S. dollars in paying its suppliers, she said.

“This company may want to obtain greater pricing transparency on these transactions with the RMB. This may be more difficult in U.S. dollars, since the supplier will build in a buffer for their hedging.”

Ling expected that the internationalization of the RMB would come in three stages ― first as a trade currency, then as an investment currency and in time as in international reserve currency.

“Already over 13 percent of trade with China has been redenominated into RMB within the last five years. We have also seen growth in the offshore RMB market for investment products, in particular with dim sum bonds,” she said, noting that the dim sum bond market reached 92 percent of the 2012 financial year issuance by July 2013.

The world’s central banks are moving to diversify into RMB, and this too is expected to continue, Ling said.

One of the fastest to catch on, Standard Chartered Bank in 2010 adopted its independently created “RGI,” or Standard Chartered Renminbi Globalization Index, the first industry benchmark that effectively tracks the progress of RMB proliferation.

The RGI reached a new high of 1,002 in May, up 8.4 percent on-month and breaking the 1,000 mark. This translates to 66.2 percent year-on-year growth, and a tenfold increase since the index began at 100 in December 2010.

Ling also suggested that the RMB globalization move has been gaining an increasing degree of support from companies worldwide. According to Standard Chartered Bank’s recent survey on 307 corporate treasurers worldwide, about 73 percent of treasurers said that RMB will be at least the world’s third-most important currency within 10 years. For companies located in Asia, this rate rose to 85 percent.

She admitted that some challenges of RMB globalization include preconceptions about a difficult regulatory environment, lack of demand from suppliers and customers, and fears over the complexity of procedures of converting into RMB as trading currency.

“We understand that the redenomination is a journey which won’t happen overnight as there are internal and external hurdles which take time to overcome. All of these challenges can be overcome by seeking solutions and advice from your banking partners,” she said.

By Chung Joo-won (joowonc@heraldcorp.com)
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