Renminbi internationalization remains on track despite cyclical drop in payments
The renminbi (RMB) has dropped two places in the global currency payments tables, driven by a slowdown in the value of institutional transactions, but analysts remain confident that the currency’s global role will expand.
Recent data released by Swift, the financial messaging service, show that October saw a decline in global renminbi payments for the second month in a row. RMB payments reduced by 10%, while other countries increased by 9.3%, compared with September 2012, says the report.
The RMB now takes 16th place, down two places since September, on the world currency payment table.
“Institutional transfers – usually interbank payments – account for the vast majority of RMB payments, and have declined in September and October,” says Wim Raymaekers, head of banking markets at Swift.
And according to Raymaekers, institutional transfers and not trade settlement is driving the adoption of the RMB. In October, institutional transfers represented 98% of the total payments value for the UK and 94% for Singapore.
However, China volumes have decreased this year due to slowing global trade and the eurozone crisis, so the fact RMB payments have declined during the past two months might not come as a big surprise, says Michael Vrontamitis, head of product management, transaction banking for Standard Chartered in Hong Kong.
“The slowdown in China is well known, but as economic activity gains pace, so will RMB payments,” he says. “I am not really concerned about the recent figures from Swift as it offers a month on month perspective that may not necessarily highlight the longer term, trend.
“It is much more important, however, to take a holistic view when it comes to reading figures out of China because an individual data point, can actually be quite misleading because it doesn’t explore the broader picture.”
Frankie Au, director of product management, transaction banking at Standard Chartered in Hong Kong, agrees: “While the Swift data is good for understanding payment activity as a whole, it does not tell us which types of transactions are having the most influence on the numbers. Basically, the information is not granular enough.”
As Howard Yang, product head of treasury and trade solutions at Citi transaction services in Hong Kong, says: “We haven’t seen any decline in transaction volume in our books. There is, however, a drop in value, mostly driven by FX settlement and other investment flows into the Hong Kong market.”
The number offshore RMB bond listings have declined in Hong Kong and this has impacted the overall value of RMB transactions processed there. This, coupled with FX impact, has had an impact on payment value but payment volumes have not decreased.
Indeed, third-quarter results show that the redenomination rate for RMB was 12.3% in August, up from 10.3% at the beginning of the year. “This shows that the RMB is continuing to develop as an international payment currency, and this is a trend that remains on track,” says Au.
Western Union, a global payment services company and the first non-bank to launch direct RMB payments, has seen the appetite for trade settlements in RMB noticeably grow during the past year.
In the second quarter of 2012, Western Union clients in America increased the number of RMB payments to China by more than 15% compared with the previous quarter. In the UK, RMB payments rose nearly 10% during the same period, while France and Australia saw an increase of 30% and 25% respectively.