South African Banks Urged to Adopt Renminbi, the Chinese Currency

Chinese Renminbi vs US Dollar

VENTURES AFRICA — May 7, 2013 — South Africa banks have been urged to adapt the Chinese currency (the renminbi) as the currency will become a prominent factor in doing business.

According to a survey by an international bank HSBC, if the local banks fail to adapt to the rise of the renminbi, they could lose a substantial amount of business to international banks when it comes to facilitating trade with China, the world’s second- biggest economy.

HSBC believes that by 2015, one-third of the China’s international business transactions will be made in the renminbi. The bank adds that 30 percent of the China’s trade, equal to about $2 trillion, will be transacted in the renminbi.

At least 150 countries now do renminbi business each month, a sign that the use of renminbi for cross-border transactions was growing, the HSBC survey highlighted. HSBC also indicated that yuan payments had grown by 171 percent in value between January 2012 and January 2013.

In 2010, about 2.6 percent of import and export goods trade in China was transacted in renminbi. Last year, this grew to about 8.2 percent.

Global head of foreign exchange strategy research at HSBC, David Bloom, said data shows South Africa as the 21st-biggest exporter to China with exports valued at about $12 billion. Angola was the 14th-biggest exporter to China with exports worth $23 billion.

He indicated that research had further showed that South African exports to Asia had been increasing while those to Europe were falling. The South African Reserve Bank indicated during the BRICS Summit in March that it could invest up to $1.5 billion in China’s bond markets. HSBC believes that other sovereigns in Africa are likely to follow this trend.

HSBC also pointed out that there were initiatives to allow foreign companies to raise renminbi funding through initial public offerings and bond issuance.

In South Africa, Standard Bank, Africa’s largest bank by assets and earnings, has a relationship with Industrial Commercial Bank of China (ICBC) and should be able to leverage off this institution.

Absa Group has an opportunity to leverage off its relationship with its parent Barclays.

“Chinese companies are happy to bypass the dollar,” said John Bennet an independent currency specialist based in Johannesburg. “And African companies have been very receptive to the idea of switching to yuan-based transactions.”

Standard Bank expects at least 40 percent of the $120 billion in trade between Africa and China each year to be settled in yuan by 2015. The bank has branches in 17 countries on the continent, and is moving to providing yuan deposits and withdrawals at all of them.

Much of the uptake is by the thousands of Chinese companies operating across Africa. The renminbi is used to pay suppliers back home, settle debts and pay employees. African companies doing business with Chinese sub-contractors are also switching to the renminbi. to pay their bills. In doing so, they cut costs incurred by using a third currency to settle trades.