With increased geopolitical tensions around the world, such as the ongoing Russia-Ukraine war, CFOs and treasurers are looking at ways to safeguard their operations against possible blowback from sanctions and ensure that transactions can be processed in a timely manner. While the US dollar still remains the global reserve currency of the world, there is increasing chatter among CFOs and treasurers about boosting their exposure and usage of the renminbi as an alternative tool for trade settlement.
Throughout The Asset’s Best Renminbi Bank Award evaluation period, several CFOs and treasurers, particularly those at China-based companies, shared that a growing amount of their buyer clients were keen to pay in renminbi if it meant that they could receive discounts due to foreign exchange cost savings.
For several years already, the renminbi has been predicted by some to become a currency whose use might one day overtake, or be used on par, with the US dollar. In addition, to already being widely accepted as a trade settlement and investment currency, a number of central banks are also looking at the renminbi as an important reserve currency.
Currently, China appears focused on improving renminbi usage within the country, promoting pilot schemes in major Chinese cities for its central bank digital currency, the e-CNY. The hope, going forward, is that the use of the e-CNY domestically can initially prevent illegal transactions and increase visibility and control for CFOs and treasurers. A key consideration going forward will be how the e-CNY can be used for cross-border transactions when, for example, mainland Chinese tourists start travelling globally again in the post-pandemic world.
Another sign of the renminbi’s coming of age journey is the willingness of commodity stakeholders to accept the currency for payment. In March, there were reports that Saudi Arabia was in active talks with China to accept renminbi as a form of payment for oil sales, potentially paving the way for further renminbi-denominated transactions.
Banks are an important component in supporting renminbi usage as they often need to craft solutions that help with offshore renminbi financing and onshore access to the Chinese capital markets. Over the evaluation period, The Asset spoke to a number of banks learning and understanding the various ways they were able to help stakeholders access the renminbi.
Examples of solutions presented include renminbi outward direct investment from China to a Southeast Asian country and custodian services for a Japanese investor aiming to use the Bond Connect channel.
While the infrastructure of the renminbi is gradually falling into place, the currency, nonetheless, has some way to go before it can even come close to dislodging the US dollar. According to Swift’s May 2022 RMB Tracker, the renminbi was the fifth most used payment currency in the world with a share of 2.14%, while the US dollar retains the top spot with a 41.81% share.
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