Greater Use of RMB in Global Payments Imminent
Similarly, China has now become a major source of foreign investment worldwide, but outbound FDI in RMB accounts for only 4.2 percent, 5.3 percent and 15.3 percent of its total FDI in the 2011-2013 period. It is foreseeable that there will be much room for growth in the coming years if China’s economy continues upward growth, and its reforms on exchange rates and interest rates are deepened.
Qu Hongbin, chief economist for China at HSBC Holdings Plc, said that by 2015, one third of China’s international trade will be settled in RMB, which will catapult it to the top three global payments currencies for trade. This is an optimistic forecast, but still no one can deny the trend that the RMB is steadily gaining weight in global payments, despite fluctuations.
The establishment of the China (Shanghai) Pilot Free-Trade Zone will give the RMB another shot in the arm. It will lay groundwork for its capital accounts convertibility, marketization of interest rates and cross-border use, while exploring reforms in China’s foreign exchange management with a global vision. It is therefore expected to serve as an “offshore” RMB financial market within Chinese borders, and propel cross-border usage of RMB to new levels.
More countries and regions are upbeat about the increasing usage of RMB in global payments. A 2013 report by HSBC on RMB business among transnational companies worldwide shows that nearly half (48 percent) of businesses interviewed said they have a good knowledge of internationalization of the RMB, with the highest rate in Hong Kong and the U.K., at 72 percent and 56 percent, respectively. The figure stands at 44 percent for both the U.S. and Germany.
Of the companies covered by the survey who use RMB for transactions, 73 percent expect an increase in cross-border RMB business in the coming five years, and nearly 30 percent look forward to a growth rate of more than 20 percent. The two incentives for using RMB are: demand from trade partners, and the desire to lower risks. Almost half, or 48 percent, of the respondents opt for RMB settlement to reduce foreign exchange risks or to cut costs; 46 percent do so at the request of trade partners; and 42 percent believe RMB settlement is more convenient for daily business or accounting management. It is evident that RMB settlement brings win-win results to both parties in international trade. This is why China’s currency is being more used in global payments.
