The news that a number of banks are promoting the use of the renminbi instead of the dollar to settle trades with China is the latest sign of the gradual internationalization of the Chinese currency.
Some banks, such as BBVA, which has a 15% stake in China Citic Bank, are taking the idea to Latin American companies that export to China. Cross-border trade in renminbi is growing fast – volumes were up about 20 times in the first half of this year compared with the last six months of 2009. It is, however, still a fraction of cross-border Chinese trade settled in euros or dollars. It’s a similar story for trades involving other emerging markets.
"When a company from an emerging market trades, it will most likely be priced via dollars or euros," says Giles Page, managing director in emerging markets FX at Citi. "At Citi our three main hubs for emerging markets FX act as intermediaries for emerging markets to emerging markets flows. They are often the conduits for achieving the best price."
"Even in the NDF synthetic market," Giles adds, "direct inter-regional emerging markets trades are rare. I can’t think of many occasions where we have traded two emerging markets currencies directly in NDFs."