- Article
- International
- Cross-border Payments
RMB’s growing advantages for trade settlement
In recent years, the RMB has been gaining traction as a currency option for trade settlement. Companies such as Eastern Steel and CSCEC Steel UAE have experienced first-hand the advantages of settling trade in RMB, supported by the expertise and services of HSBC.
Given China’s important role in global trade, the RMB has risen to become one of the preferred currencies for trade settlement. Now the second-largest trade finance currency globally1, its popularity is driven by several factors, including the growing use of RMB across various markets and regions and a more welcoming regulatory environment for its use. As a result, businesses are increasingly turning to RMB to diversify their financing channels and mitigate FX risks.
Effective internationalisation
China’s strategic efforts to internationalise its currency over the past decade have entered a new phase of growth. With China the top trading partner to over 120 countries worldwide2, there are now several offshore RMB hubs such as Hong Kong, London, and Singapore offering mature RMB infrastructure and diverse services for businesses.
As of August 2024, China has built a far-reaching RMB offshore clearing network with 33 authorised RMB clearing banks in 31 countries and regions3. In addition, there’s also been the expansion of the Dim Sum bond market with a growing offshore RMB liquidity pool - especially in Hong Kong. All these efforts paved way for the wider RMB adoption in trade, financing, and investment.4
Strategic benefits
Settling trade in RMB could offer numerous benefits for businesses, ranging from greater stability when pricing goods to increased cash flow flexibility.
Using RMB has resulted in lower financing costs and convenient settlement options. It’s also been able to minimise FX risk by converting RMB directly to local currencies such as the Malaysian Ringgit, which has proven less volatile than other currency conversions.
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Using RMB to settle trade payments is particularly helpful when dealing with partners in China. By pricing goods in RMB, suppliers can mitigate the risks associated with currency fluctuations, ensuring they receive consistent income regardless of changes in the exchange rate. In this way, the RMB acts as a natural hedge for RMB payments and receivables and avoids incurring the additional FX hedging costs typically associated with transacting in a third-party foreign currency
Trading in RMB provided several important benefits, including reduced currency exchange risks, lower transaction costs, and improved relationships with Chinese suppliers and customers.
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The right partner
Having a banking partner with an extensive global network and decades-long experience supporting trade settlement in RMB can make all the difference.
HSBC has played an important role in our use of RMB by providing comprehensive support, including giving access to cutting edge financial products, facilitating transactions, and offering expert advice on navigating the "RMB trade settlement" landscape.
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With RMB services in over 50 markets, and a full suite of products, HSBC is positioned to be a go-to partner for businesses looking to capture the opportunities around the RMB’s internationalisation.
Our transactions are now fast and reliable, and we’re currently working with HSBC to possibly expand our partnership from Malaysia into other markets such as Mainland China and Hong Kong.
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In addition, HSBC Hong Kong has recently joined Mainland China’s Cross-Border Interbank Payment System (CIPS) as direct participant. This enables businesses to settle cross-border RMB payments to and from China faster and at a lower cost. It also streamlines the payment route by bypassing intermediary banks and provides better transparency on transaction details. Between CIPS and our participation in Hong Kong’s RMB Clearing House Automated Transfer System (RMB CHATS), clients can work with HSBC Hong Kong to process their global RMB payments via one centralised RMB account.
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As the use of RMB for trade settlement continues to grow, Eastern Steel and CSCEC Steel UAE, as well as many other businesses, are well positioned to benefit from these developments and seize new opportunities for growth and expansion. .
HSBC will continue to enhance its services to support customers with trade settlement in RMB across different markets. We understand how complex global trade is today, which is why our solutions are designed to simplify how companies navigate this with RMB services being an increasingly important part of this process.
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