The Pilot RMB Trade Settlement Scheme and RMB Internationalisation
May 30, 2009
- The Chinese mainland announced the pilot RMB Trade Settlement Scheme in April 2009, which is a small but one of the important steps of “internationalising” the RMB. Under the scheme, eligible enterprises in selected mainland cities and regions will be allowed to settle in RMB in trade with their corresponding enterprises in Hong Kong and other selected locations outside the Chinese mainland.
- With China’s fast-expanding economy and growing external trade, the RMB will ultimately acquire an international status truly reflective of its economic weight and trade scale, even though it at present remains largely a non-convertible currency. The RMB’s internationalisation will likely follow a three-stage process (i.e. when it is used in pricing and settlement of trade and financial transactions; use as an international investment vehicle; and use as an international reserve currency), especially after the demand for RMB has hit certain critical mass in external trade and financial transactions.
- Under the pilot RMB settlement scheme, eligible Hong Kong enterprises will benefit from having an option to quote and settle in RMB their Hong Kong-mainland trade, allowing them to better manage currency risks and reduce trade settlement costs. Hong Kong banks will have a new growth area aside from personal RMB services, where new products and services can be developed.
- As for Hong Kong, the pilot RMB settlement scheme will further strengthen it as an international financial centre, by far the largest RMB centre outside the mainland with an increasing offer of RMB products and services, including the issue of RMB bonds. It is expected that Hong Kong will have a continual role to play in the RMB’s internationalisation process, and considerable opportunities for developing additional RMB businesses over the medium-to-long term.
Pilot Renminbi Trade Settlement Plan
The Chinese government announced in April 2009 the scheme of allowing settlement in Renminbi (RMB) in the trade of Shanghai, Shenzhen, Guangzhou, Zhuhai and Dongguan with Hong Kong and Macau, and in the trade of Yunnan and Guangxi with ASEAN1 on a pilot basis.
Although the Chinese government has not yet announced the details of the regulatory and operational framework of the pilot scheme, eligible mainland enterprises in the selected regions are expected to be able to settle trade in RMB shortly with their corresponding enterprises outside the Chinese mainland under this Pilot RMB Trade Settlement Scheme (PRTSS), while the RMB presently remains a currency that is not fully convertible and is circulating predominantly on the Chinese mainland.
In principle, PRTSS will provide eligible enterprises2 engaged in trade between Hong Kong and the Chinese mainland with a new option to quote as well as to settle their trade in RMB based on their needs, which otherwise has been settled mostly in US dollar. Measures that will likely be implemented to facilitate the pilot scheme would include:
First, eligible enterprises in Hong Kong will be allowed to open “corporate RMB accounts” with selected Hong Kong banks for settling trade with eligible enterprises on the Chinese mainland. They will be allowed to deposit RMB into their own corporate banking accounts.
Second, eligible enterprises will be allowed to transfer RMB to other selected companies’ accounts on the Chinese mainland for trade-related transactions.
PRTSS: an expansion of RMB business scope for Hong Kong to benefit both enterprises and banks in Hong Kong
Following the first-phase introduction in 2004 of four types of pilot personal RMB business in Hong Kong, covering RMB deposits, remittances, exchanges and cards, there have been enhancements in the allowed business scope for Hong Kong banks, with RMB cheques for Hong Kong residents added, and limits for credit card transactions and transfers raised. Besides, designated merchants3 in selected business sectors in Hong Kong are allowed to open RMB cash deposit accounts and to exchange RMB deposits one-way into Hong Kong dollars.
Under the current RMB banking business in Hong Kong, personal RMB account holders are allowed to remit RMB 80,000 per day to the account under the same name on the mainland. Contrastingly, for trade to be effectively settled under PRTSS, the amount of RMB that would be allowed in a mainland-Hong Kong trade, or the RMB amount allowed for settlement by an eligible enterprise in a day, should be sufficiently large. Preferably, there would not be a cap for the amount allowed for daily trade settlement in RMB.
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Yuan-settlement test to start
January 15, 2009
China started to allow national currency renminbi use in settlement of overseas trade in a limited conditions. Here is the news about it:
Source: China Daily
CHINA’S central bank said yesterday that it plans to implement a pilot program that would settle overseas trade with the Chinese currency instead of the US dollar.
The People’s Bank of China will expand financial cooperation with overseas economies and “properly deal with the global financial crisis,” the central bank said.
“We’ll actively join international efforts to tackle the global financial crisis while safeguarding national interests,” the central bank said.
It pledged to implement a pilot program that the State Council announced last month.
China will allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta, China’s two economic powerhouses, and the special administrative regions of Hong Kong and Macau, according to the central bank.
Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations.
Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars, analysts said.
The dollar’s exchange rate has become more volatile since the global financial crisis began.
The central bank said it will make the exchange rate of the yuan more flexible and keep it “basically stable on a reasonable, balanced level.”
There has been speculation that the yuan’s appreciation will slow down, which would help Chinese exports maintain price advantages in overseas markets.
Tags: Yuan, roberto wong, ChinaRelated Posts:
Baosteel Has Worked Out The New Price Policy
January 1, 2009
Baosteel has worked out the new price policy for the first quarter or January in 2009 and informed its distributors gradually. In this price adjustment, increase, drop and unchangeness are all witnessed, by which Baosteel aims to reduce high EXW prices in accordance to market developments and relieve dealers’ pressure while at the same time stabilizing market prices and boosting market confidence.
On the basis of its December steel prices, Baosteel decided to uplift hot-rolled pickled plate prices by RMB200/ton, maintain prices of common cold-rolled products, hot-dip galvanized steel and electro-galvanized steel, and lower HRC prices by RMB700/ton which are still higher than current market prices after the change. Other high value-added steel products like electric steel and steel pipe see price declines ranging from RMB500/ton to RMB1,000/ton, as Baosteel didn’t make large downward adjustment for them previously.
Baosteel’s price policy is considered to be a wind vane for the steel industry all the time. This new price policy for the beginning of next year indicated Baosteel’s intension to stabilize steel prices in China’s domestic market, believe of many insiders.
Source: China Steel Net.com
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Yuan may stay strong against dollar / Update-1
December 22, 2008
This an update for those who are interested to the yuan’s exchange rate. The possibility for Yuan’s depreciation is getting lower because of intrest rate cuts of FED in USA. Currency news update :
THE yuan will likely remain strong against the United States dollar as recent rate cuts by the Federal Reserve have reduced the greenback’s appeal, experts said.
The Chinese currency gained against the US dollar last week and finished at 6.8395 on Friday, according to the China Foreign Exchange Trade System. The yuan was at 6.8451 at the end of the previous week.
The Fed lowered the key US interest rate on Tuesday to a record range of zero to 0.25 percent.
“The direct effect of the slash in rates is an overall selling of the US dollar and the weakening American economy is not likely to provide enough support for a strong dollar,” said a research note by Zhang Zhigang, a foreign exchange trader at the Agricultural Bank of China.
Chinese Minister of Commerce Chen Deming said on Wednesday that China will not rely on the yuan’s depreciation to stimulate exports and will maintain a stable currency.
Tags: China's economy, Yuan, chinese currencyRelated Posts:
Renminbi’s Rise: Necessary ?
September 1, 2008
One of the most infuluantial voices in making China’s economic policies said that “China did not need to accelerate the appreciation of the renminbi against the US dollar, according to an article published in the Financial Times.
The main point needs to be highlighted in the article is:
- China doesn’t need appreciation of Renminbi anymore because the Dollar will not weaken very much, and may get stronger.
The Chinese currency has appreciated by 7 per cent against the US dollar this year. But the pace of appreciation has slowed sharply over the last two months. In August, the renminbi even depreciated slightly against the dollar. This is only the second month that this has happened since China moved away from its dollar peg in 2005.
This year, China’s trade surplus is decreasing, but foreign reserve accumulation is increasing.
According to the FT, Mr Cheng Siwei, vice-chairman of the standing committee of National People’s Congress, warned that the strength of domestic consumption could not compensate for the weakness of investment and net exports. Although the government had introduced measures in July to loosen credit and reduce export taxes, “we need to consider fiscal policy action as well”, he said.
“Government revenue in-creased by 33.3 per cent in the first half of this year. But we have many big expenses like the Olympics and the aftermath of the earthquake. So I don’t think we can put a big sum of money to expand public spending. But we have put Rmb3.5bn ($512m) into subsidising small and medium-sized enterprises.”
You can read the original article: “Renminbi rise ‘less necessary’” By Martin Wolf in London and Geoff Dyer in Beijing.
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