Geographic restrictions on China's year-old renminbi cross-border trade settlement pilot scheme have been lifted, a move that is in line with the country's push to slowly internationalise its currency.
Trade transactions from anywhere in the world can now be settled in renminbi under new rules announced by the People's Bank of China, the country's central bank, and other regulatory agencies last week. Previously only deals between companies in Hong Kong, Macau and select Asean (Association of Southeast Asian Nations) were allowed with mainland designated enterprises (MDEs) in five cities. The new rules also allow export transactions to be conducted from 20 provinces and municipalities.
Imports to China are still restricted to only MDEs.
"With the expansion to 20 cities [and provinces] we expect 95% of China's exports to be covered by the scheme," said Michael Vrontamitis, Standard Chartered's transaction banking head of product management for Northeast Asia. According to the bank's estimates, only 0.3% to 0.4% of China's total trade was settled in renminbi during the 11 months since the programme began last July.
"The scheme is in early days yet and we expect demand for settlement in renminbi to continue to grow as companies assess the opportunities in settling in renminbi," he concluded.
Vrontamitis's comments come after Standard Chartered participated in a global roadshow with China's central bank to promote renminbi trade settlement. Last week, presentations were given in Japan and South Korea where he said they had "good attendance" despite both countries' teams playing in World Cup games late the night before. The roadshow also visited Europe and Southeast Asia.
The liberalisations came the same week the central bank announced it would increase the flexibility of the renminbi's exchange rate. While the expected level of appreciation and when it would occur were not disclosed, it was clear that the move would be gradual and in relation to a basket of currencies, not just the US dollar.
Citi's China economists estimate that the currency will appreciate by 3%, to Rmb6.62 to $1, by this time next year.
Vrontamitis said he did not think that the changes to the cross-border trade settlement scheme were directly linked to the internationalisation of the renminbi but he acknowledged that it was "part of the journey".
Standard Chartered is not the only bank participating in the programme. J.P. Morgan began officially offering cross-border settlement last month and HSBC has been actively promoting trade services in the currency, launching renminbi-denominated current accounts and a standard lending rate in Hong Kong this March.
China's bilateral trade with the world totalled $2.2 trillion last year.