SLOW START TO RMB TRAD­ING

Di­rect trad­ing be­tween the Kiwi dol­lar and Chi­nese RMB is now a re­al­ity. So what’s the ad­vice for our ex­porters?

Exporter - - CONTENTS - By Ruth Le Pla.

Di­rect trad­ing be­tween the Kiwi dol­lar and Chi­nese RMB is now a re­al­ity. So what’s the ad­vice for our ex­porters?

Ex­porters are be­ing told to keep a close eye on op­tions for di­rect trad­ing be­tween the New Zealand dol­lar and the ren­minbi. The ad­vice comes de­spite a slow start to di­rect trad­ing be­tween the two cur­ren­cies since Prime Min­is­ter John Key and Chi­nese Pre­mier Li Ke­qiang an­nounced the new deal in mid-March this year.

Un­til then, New Zealand ex­porters had to set­tle trans­ac­tions with Chi­nese im­porters via a third cur­rency. Usu­ally the US dol­lar, this added in an­other layer of cur­rency con­ver­sion costs.

Ger­ard Field, HSBC head of global mar­kets for New Zealand, is ad­vis­ing ex­porters to stay close to the topic. The pace of China's cur­rency re­form is pick­ing up, he says, and New Zealand ex­porters should not as­sume it's go­ing to be a static en­vi­ron­ment.

“This is an econ­omy that is open­ing up and it's key to stay on top of de­vel­op­ments to make sure you are get­ting the best deal.

“If you're in­voic­ing in ren­minbi (RMB) there may be a dif­fer­en­tial be­tween a US dol­lar and a RMB price. So look at who gets the ben­e­fit or it might be about shar­ing the ben­e­fits.”

De­spite this, Field says he ex­pects the mar­ket for di­rect trad­ing to grow slowly at first. “When Aus­tralia gained di­rect con­vert­ibil­ity in April last year, the amount traded was quite small to start but has grown to be quite sig­nif­i­cant.”

He says the China For­eign Ex­change Trade Sys­tem (CFETS) web­site shows only around AUS$300 mil­lion traded in April last year. By Fe­bru­ary 2014 that had grown to around AUS$3 bil­lion, al­though Field cau­tions it is hard to tell how much of that is tradere­lated flows rather than in­sti­tu­tions mov­ing money around.

HSBC is one of 10 or 11 banks given “mar­ket maker” di­rect trad­ing author­ity by The People's Bank of China. Oth­ers

“The owner of one New Zealand­based en­gi­neer­ing firm tells us this new ca­pa­bil­ity has helped give him the im­pe­tus to grow his busi­ness, ex­plore new op­por­tu­ni­ties in China and deal with a wider range of Chi­nese sup­pli­ers and cus­tomers.”

Full con­vert­ibil­ity

The move to di­rect trad­ing, which al­lows con­vert­ibil­ity on the cur­rent ac­count, is an­other mile­stone on the Chi­nese Govern­ment's path to­wards open­ing up its econ­omy and mak­ing the RMB an in­ter­na­tional cur­rency.

The big deal will be when it al­lows full, cap­i­tal ac­count, con­vert­ibil­ity. HSBC econ­o­mists in Hong Kong fore­cast the RMB will be fully con­vert­ible within two to three years.

Ac­cord­ing to ANZ fore­casts, if China continues to pur­sue fi­nan­cial re­forms, its fi­nan­cial sys­tem will be more than twice the size of the US sys­tem by 2030 and the RMB will ri­val the US dol­lar as a global re­serve cur­rency.

For now, how­ever, Field says HSBC is not see­ing a lot of vol­ume in di­rect RMB/Kiwi dol­lar trade.

“But keep an eye on it. If this mar­ket de­vel­ops you will cer­tainly save trans­ac­tional costs and should see some tight­en­ing of the [bid] spread be­tween the Kiwi and the RMB.

“We're out talk­ing to New Zealand ex­porters. They're a pretty savvy bunch of people. They're aware of the op­tions for di­rect trad­ing but they tell us the people they're sell­ing to want to set­tle in US dol­lars.

“We tell them to give it time. This is a rapidly-de­vel­op­ing area and the Chi­nese are keen to see it re­ally take off.”

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