A growing number of European companies are switching to Chinese currency Renminbi for their Chinese business, according to a survey carried out by Deutsche Bank.
Currently a fifth of companies carry out their invoicing in Renminbi, with the remaining 80 per cent stating that switching their invoicing over to Renminbi is already in the pipeline, according to the survey of 102 businesses in the UK, Germany and the Netherlands.
By moving over to Renminbi, companies can lower prices in negotiations with Chinese business partners by an average of 4.8 per cent, said Deutsche.
“We are seeing a growing trend towards the use of Renminbi transactions, particularly from small and medium enterprises,” said Nils Ole Matthiessen, head of global finance & foreign exchange structuring, Germany & Austria.
In doing so, companies are expanding their network of suppliers and buyers by bringing on board more Chinese companies who, in the past, only had limited access to western currency. They are also improving their negotiating position with Chinese customers and suppliers.
“Transaction costs are reduced and buyers can secure price reductions of an average of almost 5 per cent,” said Ole Matthiessen.
In spite of increasing volatility in foreign exchange markets, only around half of companies that were surveyed hedge foreign exchange risks in Renminbi transactions.
For companies themselves, the greatest obstacles in international foreign exchange transactions are the slow payment process (approximately 30 per cent) and difficulties in obtaining approval for payments from the Chinese authorities (approximately 15 per cent). “Processes which accelerate or simplify payment processes in Renminbi helps European companies to strengthen their competitive position in China,” said Ole Matthiessen.
Trade outside of China using the Chinese currency Renminbi currently amounts to around US$2 billion per day, meaning that trade in the currency pair USD/RMB has doubled in volume over the past 15 months (May 2011: US$1 billion). Cross-border RMB processing volume rose year-on-year by 42 per cent to RMB 1.4 billion in the first half of 2012. Deutsche Bank processes between 20 to 30 per cent of global trade in Renminbi (outside of China) through its systems.