In another small step towards full convertibility of China's currency, Standard Chartered has become the first bank to offer a range of services that will let companies and institutions in Southeast Asia trade with selected mainland counterparties in renminbi.
The services on offer under the new scheme include renminbi payments, foreign exchange, trade services and renminbi clearing and settlement services in Asean markets including Singapore, Malaysia, Thailand, Indonesia, Vietnam and the Philippines.
As there are no renminbi current accounts or deposit services in these countries yet, the main beneficiaries will be Chinese counterparties, who will save money on foreign exchange transactions. But according to Jiten Arora, Standard Chartered's head of transaction banking for Southern Asia, the new services will help to make trade with China more efficient and reduce FX costs.
"There are significant benefits in trade," he said. "With these new services, letters of credit and guarantees can be made in renminbi, which means the full flow of trade with China can happen in a single currency."
Arora adds that Standard Chartered will also be offering renminbi bank accounts in Asean countries before the end of the year. This could lead to the development of onshore renminbi capital markets as holders of the currency demand a broader range of investment options and financial instruments.
"Current investment instruments available to corporates in Asean are limited to deposit placements, but we will see that change; there will be capital markets development, both domestic and offshore." said Arora.
Until now, trade with China has typically been conducted in US dollars, but authorities on the mainland are keen to slow the inflow of a currency that it already has too much of -- and are just as keen to develop their own currency as a means of settlement for international trade.
To help achieve this, the Chinese launched a pilot scheme in Hong Kong in July. Standard Chartered's new services in Southeast Asia are an extension of this scheme. It has taken a bit longer to offer the services to the rest of the region because they lacked the head-start enjoyed by Hong Kong, where banks in the territory first started offering renminbi deposits and foreign exchange in 2004.
The initiative includes only certain enterprises in five Chinese cities: Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan. The limited roll-out of the scheme is aimed at preventing speculation, which could de-stabilise the renminbi and undermine its usefulness as a settlement currency.