A lack of knowledge and skills within international companies to facilitate renminbi payments for cross-border trade, combined with liquidity concerns, is hampering global adoption of the Chinese currency, according to a new survey.
The Generation ¥ – RMB: The New Global Currency study, commissioned by Allen & Overy and carried out by the Economist Intelligence Unit, found that while 90% of executives see RMB as very important to their company, 77% believe there is a lack of understanding around how to use it.
Source: Allen & Overy LLP
The surveyed corporates, comprising of 150 senior executives across Asia, Europe and North America, expressed concern about their levels of RMB-related knowledge. The figures are particularly marked in the US, where 84% stated they have worries compared with 66% in Europe.
The need to alter intra-company invoicing was cited by 44% of respondents as being an important or a very important issue affecting their RMB usage. A poor internal IT network was cited by 38% of respondents as slowing their rate of adoption.
Some 64% said that lack of liquidity was posing an important or very important obstacle to increased usage. Insufficient levels of liquidity in the secondary market was given as their biggest cause for concern.
Source: Allen & Overy LLP
In addition, delays in the establishment of the China international payments system is the single biggest regulatory hurdle, according to 74% of the respondents.
Considering the best centres for liquidity management, the prime locations for the coming five years is split internationally, with Hong Kong, the Shanghai free-trade zone and Singapore among the top five locations. Interestingly, Luxembourg is ranked ahead of London as the preferred location for liquidity management outside Asia over the next three years.
The report notes that crucially a number of multinational companies
outside of Asia are now using RMB as one of their top currencies.
Volkswagen and Daimler in Germany and Ford and General Motors in the US
have stated the RMB is now their second most-used currency.
Of the non-Chinese companies using the currency for payment, 74% of such companies in Singapore and 59% in South Korea are using the currency. This compares with 57% of companies in the UK and 54% in North America.
The relocation of regional treasury centres or the shift of greater powers to their China-based operations was highlighted by 64% of respondents.
Cindy Lo, partner at Allen & Overy, says: “Corporate treasurers are developing more diverse views towards renminbi exposure. If you look at multinational companies, especially those with operations in China or those who have trading relationships with Chinese counterparties, they increasingly use renminbi as a settlement currency.”