It’s more than three years since former Chinese President Hu Jintao announced that an international currency system dominated by the US dollar is a “product of the past”.
Earlier this month French Finance Minister Michael Sapin also called for a “rebalancing” away from the dollar, after US authorities fined BNP Paribas $9 billion for processing transactions on behalf of Sudanese, Iranian, and Cuban entities. “Shouldn’t the euro be more important in the global economy?” Sapin asked journalists. “We have to consider the weight of the dollar and the consequences of pricing things in dollars when it means that American law applies outside the US.”
So Sapin might be interested in the release of HSBC’s latest survey on attitudes towards the renminbi across more than 1,300 businesses in 11 countries.
One of the most striking results was that a third of respondents said they expected the renminbi to be used even for trade deals that lacked a direct connection to China, and this would occur within five years.
If that happens, some of the dollar’s dominance will erode – even if it’s the renminbi rather than the euro that is making the challenge.
The headline number in the study was that 22% of the companies are already settling business with renminbi. But another trend that stands out is that three-fifths of the businesses that aren’t doing so expect to make the change in future either because their trading counterparts request it or because they see it as a way of winning more business.
“This isn’t just Chinese firms asking to be paid in their home currency,” Noel Quinn, HSBC’s Regional Head of Commercial Banking in Asia-Pacific told WiC. “It’s also international suppliers and buyers electing to use the renminbi as a way of differentiating themselves from their competitors.”
“Of course, there can be an economic benefit in avoiding some of the costs in currency conversion,” Quinn added. “But clients tell us that they see a relationship advantage as very important in adopting the renminbi too.” In fact, 77% of the firms already using the currency cited ‘relationship advantages’ as their main motivation, with 76% identifying financial benefits as another primary reason.
Is there a sense that companies are opting for the renminbi for relationship reasons but then becoming better aware of the financial benefits of paying for goods with it?
“I think that’s a reasonable conclusion,” Quinn said. “Once companies start using it, many of them have a chance to make savings. For instance, 42% of the Chinese firms in the survey said they would offer discounts of up to 3% if trade was settled with renminbi, while 15% were ready to consider savings of up to 5%.”
Adopting the renminbi isn’t a guarantee of lower prices – 41% of Chinese firms said they wouldn’t offer better terms – but switching does open up the possibility of a negotiation, Quinn adds.
Outside of Hong Kong, Taiwan and the Chinese mainland, cross-border usage is strongest in Europe. Uptake in Germany (23% of firms questioned in the survey) picked up significantly over the last year, although France is home to the highest number of businesses familiar with the Chinese currency (26% of respondents). Part of that is policy-driven as more trade and investment deals are signed. There’s also competition between the European financial hubs to win the lion’s share of the offshore renminbi business too.
Other countries trail further behind. In the United States only 17% of respondents said they were using the renminbi, for instance, although more firms that they expect to start to do so soon (22% in the current study, up from 8% last year).
In other markets the uptake is lower, including some unexpected candidates like Australia, which trades heavily with China, but where only 9% of firms said they were familiar with the renminbi. But this isn’t a massive surprise, Quinn says, because so much Sino-Australian trade is in commodities. “At the moment the commodity trade is dominated by the dollar,” he told WiC. “But once the industry starts to accept more payments in renminbi, I think that usage will pick up quite quickly.”
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