The Time is Now for RMB Adoption
An Executive Interview with Frank Oliver Wolf, Global Head of Cash Management and Martin Keller, European Head of Interest, Currency & Liquidity Management, Commerzbank
Despite some softening of growth in recent months, China remains a priority market for corporations of all sizes, for both sourcing and sales. Larger multinational corporations and financial institutions are already familiar with the opportunities to use RMB as a settlement currency with counterparties in China, but mid-cap companies are at an earlier stage in RMB adoption. In this Executive Interview, Frank Oliver Wolf and Martin Keller discuss the benefits for mid-cap companies of introducing RMB into their currency mix.
The opportunity to use RMB for cross-border trade has existed for some years: why has it now become such an important issue for Commerzbank and your customers?
Frank Oliver Wolf: At the start of 2013, RMB was ranked as the 13th global payment currency. Only eighteen months later, RMB had become the 7th largest payment currency globally (SWIFT’s RMB Tracker, September 2014), a remarkable leap in such a short time. This emphasises the increasing market confidence in the use of RMB, and the expanding range of opportunities to manage payments and collections, liquidity and cash investment in RMB, both on- and offshore.
With ongoing uncertainty in developed market economies, particularly the Eurozone, our mid-cap customers are becoming increasingly proactive in exploring commercial opportunities outside their home region, with China a particular focus given its size and potential. By adopting RMB as a trade settlement currency, the opportunities for these companies to do business in China and form strategic partnerships in the region are amplified.
We have seen an ongoing programme of liberalisation in recent years which is making RMB adoption easier. What are the remaining obstacles, and how is Commerzbank helping to overcome them?
Martin Keller: As you mentioned before, these opportunities are not new: after all, the ability to settle cross-border trade in RMB was first introduced in 2009; however, the obstacles to RMB adoption continue to fall, making it an increasingly attractive proposition. For example, while Hong Kong remains the largest offshore RMB clearing hub, the development of Frankfurt as an RMB clearing hub is particularly appealing to corporations headquartered in Europe, particularly Germany. The economic links between Germany and China are very strong, and the opportunity for mid-cap companies such as in manufacturing industries, to form or strengthen partnerships with counterparties in China are becoming increasingly compelling. Working with banks in London or Hong Kong for RMB clearing can be a daunting prospect, however, for these companies that may have no history of doing so. Conversely, accessing RMB clearing in Frankfurt enables mid-market companies to benefit from local expertise and language skills within the same time zone, as well as the ability to work with banks with which they have an existing, trusted relationship. Furthermore, Frankfurt is quickly emerging as a centre not only for transaction clearing, but also for a wider suite of solutions, including cash management, FX and investment. This makes it easier for corporations in Europe to include RMB held offshore within their regional and global cash management structures.
FOW: One of the biggest obstacles to RMB adoption amongst mid-cap corporations is lack of information. This is a particular area in which Commerzbank can help. We are proactive in helping companies to understand and implement steps to enable RMB settlement, and take advantage of the opportunities that exist to manage cash and risk accordingly.
While there are a number of large banks that support RMB, mid-cap corporations in particular are looking for a bank to accompany them throughout the process, and help them to implement the right solutions for their business. As the regulatory environment in China is complex and fast-changing, there is a tendency to assume that RMB adoption must be complicated, but we help our customers to keep things clear and simple. Mid-cap corporations are already accustomed to managing more than one currency and despite perceptions of complexity and constraint, including RMB into the currency mix is no different.