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SWIFT: More U.S. Companies Trading In China’s Currency

A dramatic shift is underway in the currency U.S. companies use to trade internationally, especially with China, new data show. Increasingly, U.S. firms are settling trades in China’s renminbi instead of the U.S. dollar. Though the U.S. currency still dominates trade in the China/Hong Kong corridor, some foresee a dramatic change in currency-usage trends.

U.S. companies quickly are embracing China’s renminbi currency as the payment vehicle for international imports, and it displacing the dollar as a trading currency at a rapid pace, new data from international currency-settlement firm SWIFT show.

U.S. renminbi payments grew by 327 percent between April 2013 and April 2014, as more American companies chose to trade internationally using the Chinese currency, especially with China. The U.S. now ranks third in renminbi payments value, excluding China and Hong Kong, SWIFT reported last week.

In April, SWIFT’s RMB Tracker shows, the U.S. carried out 2.6 percent of total global renminbi payments value, up from 1.3 percent a year earlier. Only Singapore and the United Kingdom traded more using the Chinese currency.

The growing renminbi use by the U.S. in trading within the China/Hong Kong corridor is helping promote the use of the currency for cross-border trade, according to Michael Moon, SWIFT’s head of payments for the Asia Pacific region. “Although the corridor remains dominated by the U.S. dollar, data suggest the U.S. is increasingly using the [renminbi] to support its corporates that want to reach more suppliers in mainland China,” he said in a statement. “This is good news for the internationalization of the [renminbi] as a world payment currency.”

Renminbi payments value in the U.S. to the China/Hong Kong corridor grew by 22 percent between April 2013 and April 2014, and it accounted for 2.4 percent of all payment value as of April 30 this year, SWIFT said.

The renminbi ranks seventh in global payment currency and accounted for 1.43 percent of global payments in April, down slightly from 1.62 percent in March 2014. Globally, all currencies increased in value by 0.6 percent in April, according to SWIFT.

The reasons driving the upsurge are structural and long term, Debra Lodge, a managing director at HSBC in New York, noted in a Financial Times blog post.

“First, U.S. importers can slash the cost of imports from China by agreeing to trade in renminbi rather than U.S. dollars,” Lodge said in the post. “Second, a recent surge in the popularity of a host of renminbi-denominated financial-market instruments are making it easier for U.S. corporates both to hedge currency risk and to earn an investment return from the renminbi they hold.”

The size of renminbi settlements between the U.S. and China is far less impressive than the growth rate, she said. However, this is set to change, Lodge said. “By the end of 2015, we think that 30 percent of (China’s) global trade will be settled in renminbi, up from 13 to 15 per cent now,” she said.

Large Chinese companies traditional drove much of the switch from dollars to renminbi, but this is changing, Lodge said. “I think over the next two years we are going to see a much greater uptake from small and medium enterprises in China using renminbi (for trade with the U.S.),” she said in the post, citing as a chief cause the recent depreciation of the renminbi, which has lost 3.2 percent against the U.S. dollar so far this year.

A shift to the renminbi eliminates for Chinese exporters exchange-rate risk, while U.S. importers can hedge their currency exposure in an increasingly liquid offshore market for renminbi financial instruments, Lodge said. The ongoing substitution also is helping to wean Beijing off its reliance on U.S. debt markets. Over time, this would free China by degrees from its uncomfortable inclusion in the U.S. dollar zone and boost its financial independence, Lodge said.



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