July 27, 2014 (Forbes)
A survey released last week by HSBC Global says more U.S. multinationals are closing trade transactions in…you guessed it…the Chinese yuan.
Of course, this sort of news is right up HSBC’s alley. They are one of the premier financial centers in Hong Kong, where much of the off-shore Chinese currency transactions take place. It’s like a dream come true for the old colonial bank: the yuan increasingly being taken seriously as a viable trade currency.
According to the survey, U.S. businesses have joined a growing number of German and French firms using the yuan and more plan to use it “amid expectations by business leaders that their trade with China will increase in the next 12 months,” HSBC said in a press release on Wednesday.
Seventeen percent of U.S. businesses surveyed said their companies had used the yuan to settle trade this year, up from 9% last year. A total of 102 U.S. firms were part of the global survey that spread out along 11 countries. The global average was 22%.
The number now places U.S. businesses just behind French (26%) and German (23%) businesses in terms of yuan transactions outside of China, Hong Kong and Taiwan.
Even better fodder for the dollar death watchers, 22% of U.S. businesses who aren’t already using the yuan in transactions said they plan to use it within the next six months to five years, up from just 8% a
year ago. Globally, an average of 32% of business leaders said they planned to use the Chinese currency in the future.
“As China continues to internationalize its currency, there are more opportunities and considerations in trade, investment, cash management and funding for U.S. companies,” said Steve Bottomley, Head of Commercial Banking for North America at HSBC Bank U.S.A. Bottomley said that American businesses are are becoming more comfortable using the yuan and are increasingly making it part of their competitive strategy and planning.
The yuan is not set to overtake the dollar in Asian trade just yet. But as trade with China grows, one thing is certain: more American companies are willing to settle in yuan and hold that currency in accounts rather than exchange them for dollars.
In the next 12 months, 55% of U.S. businesses said they expect trade with China to grow, down from last year when 76% said trade flow should improve.
U.S. businesses now sell about 7% of their exports to China, compared to just 1% a decade ago. HSBC expects that to increase to 14% by 2030, adding to yuan demand.
HSBC also forecasts that a third of China’s trade will be settled in its own currency by 2015 and that the currency will be fully convertible within three years.
Most U.S. businesses surveyed said they don’t use the yuan in trade settling because they don’t understand or aren’t aware of the benefits of using it.
In other countries, executives said the top reasons for using the yuan were meeting demand from counter-parties, minimizing foreign exchange risks and increased convenience.
Using the yuan “also improve business relationships by making it more convenient for their Chinese counterparties, who may be reluctant to take on dollar exposure because their cost base is denominated in renminbi,” said Martin Brown, corporate lending chief at HSBC Bank in the U.S.
Global investors keep flooding into Asia and pushing the region’s currencies higher. WSJ’s Jake Lee speaks to Sacha Tihanyi, Senior Currency Strategist at Scotiabank.
Present rush- India and Indonesia (political changes but huge structural changes needed)
Malaysia ans South Korea- doing well but volatile
Taiwan and China- most stable.