Since 2009 the PBOC Peoples Bank Of China has been experimenting with direct settlement in RMB. Up until then, wherever you were in the world you would have deal in USD.
Dealing in USD meant that countries not using USD would have to take on multiple exchange rate risk. For example an European company would have EUR-USD-RMB (RMB-USD-EUR) risk involved in any transaction.
Initially there were controls via the Mainland Designated Enterprise (MDE) list, however for most Chinese enterprises in most regions this has been scraped from March 2012. There are still limitations from a practical perspective on the ground in China, however there is the potential for most medium sized Chinese companies now to accept overseas payments in RMB.
From the Chinese enterprise’s perspective directly receiving RMB also reduces exchange rate risk. Another factor is that obtaining USD is not as convenient as it should be in China, with additional administration to deal with.
Looking to the future, it is certain that direct RMB-RMB settlement will become the norm. Take a look at your China business and see where there can be advantages for your and your trading partners. Not only will it reduce risk, there could be scope for additional cost savings and also speeding up payment times.
RMB – Ren Min Bi 人民币. The official Chinese abbreviation.
CNY – Chinese Yuan. Common overseas term used for the Chinese currency.
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