An employee counts yuan banknotes at a bank in Beijing. European companies are increasingly using the renminbi to settle trade with Chinese counterparts in a sign that Beijing’s efforts to internationalise its currency are bearing fruit.
Reuters/Hong Kong
European companies are increasingly using the renminbi to settle trade with Chinese counterparts in a sign that Beijing’s efforts to internationalise its currency are bearing fruit. Offshore renminbi hubs have been established in London and Frankfurt earlier this year, and other European financial centres are lining up to grab a share of the growing trade.
“The growth in usage of the renminbi in Europe is going gangbusters,” said Evan Goldstein, global head of renminbi services at Deutsche Bank in Hong Kong.
These successes have helped dismiss some doubts over whether Beijing could expand the currency’s footprint beyond Asia, while it was still only convertible on the trade account and heavily restricted on the capital account.
In the five years since China and Hong Kong signed a landmark agreement signalling the start of offshore business the renminbi’s usage in settling trade transactions between China and the rest of Asia steadily gained traction.
The renminbi, also referred to as the yuan, has leapt into the ranks of the top ten traded currencies. Nearly a fifth of China’s total trade with the world is now settled in renminbi, compared to less than one per cent at the start of 2009, with most of the switch made away from settling in US dollars.
The growing trend has encouraged central banks from Malaysia to Australia to keep a growing portion of their foreign exchange reserves in the Chinese currency. A rash of corporate defaults in China in recent months, a general slowdown in the economy and some technical glitches had raised questions over progress in the project to internationalise the renminbi.
China has pressed on undeterred, turning its focus on the European Union, its biggest trading partner, to put in place the infrastructure needed to increase usage of its currency.
In a series of landmark steps, Chinese authorities have established a thriving offshore yuan currency businesses in London and Frankfurt, encouraged Luxembourg to become a hub for selling yuan-denominated bonds and offered special incentives to European companies for adopting the renminbi in trade.
Those moves have started to pay off. Latest data from SWIFT, the world’s biggest electronic payments system, shows a remarkable increase in the usage of the Chinese currency in the past few months between Europe and China with the Germany, France, United Kingdom and Luxembourg leading the way.
Looking at individual countries, Germany has led the way with a seventh of its trade with China now settled in renminbi, compared with less than 2.5% in 2012.
“There seems to be a broader adoption of RMB in Germany across both large multinational organisations and small and medium sized enterprises,” said Deutsche Bank’s Goldstein.