The evolution of the Chinese renminbi (RMB) and the opportunities it presents continues its rapid pace. SWIFT declared it the eighth most traded currency in the world, moving up from 11th just a year or so earlier. This is likely a result of China’s loosening of its regulations for its currency.
The ongoing internationalization of RMB has brought numerous opportunities to foreign enterprises, including trading firms and banks, to hedge foreign exchange risks and benefit from strong RMB appreciation. For foreign sellers and exporters, including the flexibility of invoicing in RMB can extend their reach to the Chinese consumer, reduce supply chain costs, and optimize supply chain management. It can also provide exporters with pricing protection, as they can lock up their profits directly in RMB and lower the risks associated with receiving FX.
At a recent meeting of the NeuGroup’s Global Cash and Banking Group, sponsor Standard Chartered educated members as to where the RMB stands and how members can take advantage of the new flexibility the currency offers. The bank provided members with insights into the latest liquidity management capabilities across Asia as emerging liquidity structures like USD cash concentration, regional multicurrency notional pooling and RMB-linked structures develop.
Here are a few of the highlights from Standard Chartered presentation:
Since regulatory approval is no longer required to move RMB off shore, it can be pooled and moved from a pool header through one RMB special account, which has the same general opening process as a regular RMB account. This basically means companies operating in China will now be able to deposit their RMB funds raised overseas into an “RMB special account.” In July, China’s regulatory authorities expanded this program to allow for special RMB accounts in places like London or Singapore.
China’s softening of the rules came after a 2012 pilot project begun in 2012, where a few companies – both Chinese and non-Chinese – were allowed to move foreign currency and lend surplus RMB to company cash pooling centers overseas. With the expansion, the People’s Bank of China issued draft guidelines aimed at making cash pooling with RMB much easier in the near future.
With these more relaxed rules, Standard Chartered suggested that members consider pulling excess cash into a global pool in London, (or New York or the Netherlands), and park non-excess cash in lightly-regulated markets such as Hong Kong or Singapore. This way instead of over-funding local operations, companies can “just-in-time” fund a project.
While still a small portion of global FX – 1.49 percent market share as of August 2013 – China’s moves bode well for US and European companies looking to more efficiently manage cash in the region (and beyond).