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Mardi 7 Mai 2013

France Becoming a Major Player in RMB Payments

France is leading Euro countries in making renminbi payments to China following a 249 percent growth in payments value since March 2012, according to financial messaging provider SWIFT. France is now ranked fourth in the world for RMB payments value, behind the UK, Singapore and Taiwan.

SWIFT noted that 21.4 percent of payments made between France and China/Hong Kong were denominated in RMB in March 2013, compared to only 6.5 percent a year earlier. The majority of payments were institutional transfers, while only 5 percent where consumer payments.

Lisa O’Connor, RMB Director at SWIFT sees the development as an indication that France is driven to become a leading RMB trading center in Europe. “French acceleration in RMB payments reflects increased competition with the UK since the Bank of England announced that it had signed a three-year currency swap agreement with China in March,” she said. "It will be interesting to see how France’s work towards setting up a currency swap agreement with China progresses, and the impact that this activity within Europe may have on the RMB.”

SWIFT noted that the RMB has regained its position of #13 on the list of major international payments currencies, and is at an all-time high market share of 0.74 percent. RMB payments grew in value by 32.7 percent, in comparison to the average increase of 5.1 percent across all currencies.

Implications for the U.S., Canada
Alfred Nader, vice president, corporate strategy and development at Western Union Business Solutions, has previously discussed how the U.S. has been lagging behind Europe in making RMB payments. Could this news spur some American companies to get on board? Not likely, according to Nader.
“Unfortunately, U.S. corporates don’t tend to follow what the French are doing,” he told AFP. “The French are saving money and being able to be more competitive in the global marketplace. In this arena, the U.S. is lagging.”
Nader added that the Canadian corporates he’s spoken with are more open to paying in RMB than their American counterparts, though they also have not jumped on it like the Europeans have.

Karl Schamotta, senior market strategist for Western Union Business Solutions and President of AFP of Canada-Calgary, told AFP that while the renminbi is well on its way to becoming one of the world’s great trading currencies, things are not quite as simple as they appear. The U.S. dollar remains the “lingua franca” of global trade and investment, and it remains a highly versatile currency, he explained. “In addition, yuan are being printed at a prodigious rate. According to my calculations, M2 money supply in China has expanded by more than 815 percent since 1999—causing inflation to eat away at its onshore value,” he said.

This trend has led to a complex set of preferences within the Chinese business community, Schamotta explained. Many businesses will provide a substantial discount to trading partners who pay in RMB because they intend to spend the money onshore. However, other businesses are interested in holding the U.S. dollar and are less willing to consider alternative modes of payment. “In such cases, Western companies tend to find it more difficult to send local currency payments,” he said.

Schamotta added that the process is still in its infancy, both within China and across the rest of the globe. “There is considerable confusion about the processes required to efficiently move currency in and out of the country,” he said. “Ultimately though, the RMB’s growth represents a clear and present opportunity. Offering to send yuan to Chinese trading partners is a win-win—if the Chinese company is interested, the Western partner can often negotiate better pricing, while streamlining processes and controlling risk directly. If not, demonstrating a willingness to understand their needs will help to solidify the trading relationship.”

By Andrew Deichler
Association for Financial Professionals

Published: 2013-04-30


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