Despite the savings U.S. corporates can achieve by making renminbi payments to China, few did so towards the end of 2012, according to new data from SWIFT.
In 2012, RMB adoption by the U.S. was generally flat and trended downward towards the end of the year. November and December saw a steep 38 percent decrease in RMB payments, which dropped the U.S. three positions to sixth place in offshore RMB countries, behind the UK, Singapore, Australia, France and Luxembourg.
Meanwhile, many other nations continued to expand their RMB payments. The UK represented 28.3 percent of RMB payments in December and Singapore made up 22.7 percent. The U.S., in contrast, accounted for just 4.1 percent. Fully 95.5 percent of the payments value between the United States and China/Hong Kong in December was done in USD, compared to only 0.3 percent in RMB.
However, James Wills, senior business manager at SWIFT, told AFP that the downward trend at the end of the year is not a sign that U.S. corporates are eschewing the RMB. “All the December data shows is that there was a monthly variation that took place within the RMB payments,” he said. “When you look at the traffic that goes between the U.S. and China, the heaviest traffic occurs prior to the holiday season and there’s a slowdown that occurs in December. So this is not something we would view as unusual. We see it in other products that SWIFT is involved with, like letters of credit, where you’ll have an uptick that occurs prior to the holidays, there’s a downturn in December. It may carry on into January and then it picks up again in the first quarter.”
Added Wills: “I would suspect when we look at the February [RMB] data, we’re going to find it’s back in an uptick again.”
Switching to RMB
Alfred Nader, vice president, corporate strategy and development at Western Union Business Solutions, told AFP that making the switch to RMB payments in the UK was somewhat of a non-issue for many corporates. “In the UK, payments to China were being done in the USD—a foreign currency,” he said. “Switching to the RMB for a British company isn’t that much of a stretch from a Treasury perspective.”
In the U.S., it’s a bit tougher. For many companies, payments to China are the only international payments being made and they’re used to doing so in USD. “Sending the USD is easy and it will take some time and education for American businesses to come around,” said Nader. “It doesn’t get any easier for an American business to send USD, but the fact is that we’re leaving money on the table. This isn’t a theory; this is a fact.”
Nader noted that the RMB has appreciated by more than 1 percent since October 1, 2012. If a Chinese supplier sends an invoice to an American company with three-month terms, it will pad the invoice to accommodate for exchange rate fluctuations. “On a $1 million order, that’s over $10,000 being left on the table if the Chinese exporter is only adding 1 percent. The People’s Bank of China stated that importers can save between 2 percent to 3 percent by paying in the RMB. If the PBOC says this, we should listen because others around the world certainly are,” he said.
Nader suggests U.S. corporates should begin a dialogue with the Chinese suppliers about paying in RMB. Some Chinese suppliers are very open to being paid in the RMB to avoid dealing with exchange rate fluctuations, while others are hesitant because they’ve enjoyed decades of making additional profit. But the potential savings could be used to hire more American workers, invest in American business and pass along the savings to clients. “We should want to keep that money in this country,” said Nader.