People walk by an RMB advertisement in Hong Kong. (File photo/CNS)
Europe has now emerged as the second-biggest area using the renminbi for cross-border transaction settlements. Bankers and commodity traders believe the yuan can be used to settle trade transactions involving gold and bulk commodities in 10 to 20 years as long as the Chinese government continues liberalizing currency policies.
Bankers attending the 2012 FT Global Commodities Summit sponsored by the Financial Times in Lausanne earlier this week expressed the view that the current domination by the US dollar in commodity and trade transactions will undergo major changes in years ahead, and that changes could come faster than expected.
China, as the world's largest consumer of bulk commodities such as industrial metals and oil products plus an economic growth rate three times higher than most countries, has been pushing the use of its currency for transaction settlements, analysts said.
The efforts will further carry forward the goal of internationalizing the yuan. More companies in Hong Kong and the wider Asia-Pacific region now choose to settle business transactions with the Chinese yuan. The latest report from the Society Worldwide Interbank Financial Telecommunication, an international banking organization, shows that renminbi-clearing transactions in Europe have already surpassed the Asia-Pacific area and are now trailing behind only Hong Kong, the primary pilot offshore yuan settlement district designated by Beijing.
Excluding the Hong Kong market, payments made in the yuan by European enterprises accounted for 47% of the global market to exceed the market share of 41% held by the Asia-Pacific region during the month of March, according to the bank's statistics. The total global transaction amounts settled in March increased by 8.6% compared to February, but those settled in the Chinese currency registered a much higher growth rate of 13.2%.
The renminbi will be used widely as a key currency to settle international commodity transactions in 10 to 20 years, and the timetable may even arrival earlier if the Chinese government pushes it, according to Jean-Francois Lambert, managing director and global chief of commodity and structured trade finance at HSBC.
Bullish on the market prospects of the Chinese currency, HSBC has recently floated the first ever renminbi-denominated bonds exceeding 1 billion yuan (US$158 million) in London, targeted mainly at European investors.
The People's Bank of China, the country's central bank, announced earlier this month the widening of the daily RMB/USD exchange rate trading band to ±1% from the central parity.
Bankers and commodity traders agreed that this is a clear sign that China intends to further ease the fluctuations of the renminbi foreign exchange rate on the international market.