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Brandon Zin Blog

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I am learning Spanish. I am active in such languages learning website as Italki and LiveMocha. I am helping my friends learn English with fun.

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Reminbi as a currency for settlement of international trades  

2009-11-10 03:05:12|  分类: 默认分类 |  标签: |举报 |字号 订阅

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Yesterday afternoon I went and played badminton. In the evening I worked on a proposal for my US principal which involves my Chinese client purchasing certain canmaking machines and parts through us for a sum of around US$300,000. For the first time, the client made it a condition that the payment is to be made in Renminbi (RMB). This presents a headache to me.

There is an increasing trend that Chinese importers are to settle their foreign purchases by RMB. It seems there is certain agenda for Chinese corporations to do so in line with the country's policy to become less relied on the US dollar. It is a well known fact that China is the largest foreign holder of US government treasuries and bonds. The holdings are continuing to grow despite China from time to time voiced its concern over the safety of its US assets. The irony is that the Hong Kong dollars were and is pegged to the US dollar. Since 1983, the Hong Kong dollar exchange rate has been held to one US dollar to 7.8 Hong Kong dollar, with minimal fluctuations. The Hong Kong government holds that this linked exchange policy will not be changed whatsoever. It indicates that Hong Kong has great confidence in the US dollar. It appears that Hong Kong is not exactly on the same page with its mainland counterpart with respect to their views on the future of the US dollars.
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It is not surprising that China wants its currency to play a bigger role in international trades as it is the largest exporter in the world and one of the largest importers in the world. The problem is that there are a lot of rules and regulations governing the remittance of RMB into and out of the country as China does not want RMB to be a freely traded currency. 

Currency-wise,  I have strong confidence in RMB as it is one of the strongest in the world and, with the country's prevailing strong economy and as a primarily exporting country, is likely to continue to be strong. However, repatriating the money back to my US company is still a problem. It looks like it is going to involve a lot of administration works and bureaucracies.

A recently introduced test scheme in respect of the convertibility of RMB would not help me. Under the scheme, which came into force on 1st of July this year. the monetary authorities of China and Hong Kong made Hong Kong the first RMB exchange centre outside China. Under the scheme companies in Hong Kong are allowed to settle trades with their China counterparts in RMB in five major China cities, namely, Shenzhen, Guangzhou, Zhuhai, Dongguan and Shanghai. It should be mentioned only a number of authorised companies within those five cities are allowed to engage in such deals. It is clear only a handful of foreign companies will be benefited. Although it is meant to be a test scheme, there is no time schedule for extending the scheme to other cities. In the meantime, I think foreign corporations will likely to see their China counterparts to press for paying their purchases in RMB. Yet it would be a long time before RMB could turn into a freely convertible currency. It is a lesser problem if a foreign corporation has manufacturing facilities in China as it can use the RMB received to meet expenses of its local operations. As for a foreign company engaging in one way trade like us, the convertibility of the currency is likely to be a headache for a long time. 

Me playing badminton (unrelated to the subject matter)

My thoughts on Reminbi as a currency for settlement of international trades - brandonzin - Brandon Zin Blog

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