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Why to switch to renminbi?

Noel Quinn
Anew survey of companies doing business with and in China has highlighted the benefits of switching to renminbi - China's 'people's currency’.
The survey of 11 markets shows that companies that use renminbi are reaping significant financial and relationship benefits from their switch. They are also more optimistic about increasing their business in China over the next 12 months than those who use other currencies.
Over the past 11 years, renminbi has gone from a local currency confined within China's borders to become the world's seventh most used trade settlement currency and an offshore market with assets of more than RMB5.3 trillion ($855 billion).
Earlier this year, HSBC asked the market research company Nielsen to canvass more than 1,300 companies that do business with China. A number of data points stand out.
More than three-quarters of the companies that use the yuan said it had given them both financial and business relationship benefits. It is getting easier and cheaper to access RMB products, and for corporates with both operations and sales in China, using the yuan can reduce the level and cost of currency risk. And although many Chinese companies are completely at ease transacting in foreign currencies, an overseas client or supplier's willingness to shift to renminbi settlement is frequently seen as a sign of commitment.
The move into the yuan is being led by larger corporations: 42 percent of the respondents with turnover of more than $500 million said they carried out at least some of their operations in RMB, but compared to only 15 percent of those with turnover of between $3-5 million.
That split is at least in part because the larger the company and the broader its reach, the easier it is to reap the benefits of the increasingly sophisticated cross-border payments and cash management solutions -sweeping, netting and pooling for example - that are becoming possible as the People's Bank of China progressively streamlines the regulatory architecture
China is still the world's most dynamic major economy, and RMB users seem to be more optimistic about tapping into that growth. Sixty-nine percent of RMB users expect to increase their cross-border business with China over the next 12 months, compared with 56 percent of non-RMB users.
Hie survey results indicate that the extraordinary growth of renminbi usage is likely to be a long-term phenomenon.
Fifty-nine percent of companies that already use renminbi forecast that their cross-border use of the yuan would increase, and a third of the non-users said they intend to start using the currency within the next five years.The market has ample room for expansion: only 22 percent of the companies surveyed said they currently use RMB, and just 18 percent of China's cross-border trade was settled in RMB in 2013, but that is up from 3 percent in 2010.
It seems we might be approaching some kind of inflection point. In the survey, 47 percent of companies that used RMB said they expected that the currency would become an international trading currency used to settle invoices in international deals that do not involve China at all, much as the US dollar is used today.
It is interesting to note that outside of
the obvious early adopters like Hong Kong and Taiwan, the most enthusiastic converts to the RMB seem to be in Europe, where 26 percent of French companies and 23 percent of German respondents said they used RMB.
The yuan is changing. What was once a niche currency has gone mainstream, and the early adopters are not only reaping immediate financial benefits, but they are also using RMB to build strong relationships within China and seeing their business grow as a result.
The writer is regional head of Commercial Banking, HSBC Asia-Pacific.