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Letter of Credit (LCs) Denominations Shifts to Renmimbi (Rmb)

The Chinese renminbi (Rmb) is now the third-biggest currency for letter of credit (LCs) after the Dollar and the euro, according to the latest SWIFT data.  Around 4% of LCs issued globally were denominated in Rmb.  Meanwhile, banks estimate around 10% of all trade is now conducted in Rmb and forecast that this will rise to 20% 20% in the next three to five years, as China’s share of the world trade grows.

Global Trade Review in its recent article in their July/August 2012 issue (page 90/91) list a number of key trends in Rmb financing:

  • Rmb is now the third biggest currency for LCs
  • More Chinese Exporters are beginning to receive Rmb payments
  • Chinese Central Bank has set up 14 swap agreements to allow foreign banks to supply Rmb to corporate clients
  • London is to become an offshore center for Rmb
  • China Development Bank is driving local currency trade settlement between Bric nations
  • Clients of banks found that they saved between 3% and 7% by invoicing in Rmb rather than dollars

It has also been observed that people in trade finance argue that it is only natural the currency belonging to the world’s largest exporter and second largest economy becomes the currency that finances trade.

Source:  Global Trade Review (GTR) Asia Rmb Feature`

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