Cross-border renminbi settlement boosting investments
The Philippines’ participation in China’s Belt and Road Initiative is opening opportunities for the country to join in the growth of the world’s second biggest economy through increased cross- border investments. The initiative aims to establish Eurasia as an economic and trading area for shared prosperity among 28 European and Asian nations.
Currently, there is great interest from Beijing in hiking its equity placements and foreign direct investments (FDI) in the Philippine economy over the medium term. However, local firms would not be able to reap the rewards as long as business is done using the United States dollar.
When the dollar is used as a bridge currency between the Philippine peso and the Chinese yuan or renminbi (RMB), traders pay additional hedging costs to protect them against currency risks – on top of paying the operational costs of currency conversion.
By directly remitting funds denominated in RMB, foreign exchange risk and conversion fees are minimized, thereby lowering the transaction costs and encouraging greater business between Filipino and Chinese traders.
With the advent of RMB settling in Manila, more Chinese companies are encouraged to invest here due to easier, quicker, and more cost-efficient remittance of profits and dividends. Similar benefits are enjoyed by Filipino investors looking to enter the Chinese market, according to Deng Jun, country head of the Bank of China, Ltd.’s Manila branch.
He said yuan forex services are now readily available through more than a dozen local banks in partnership with the Bank of China, which is in the process of organizing a Philippine RMB community after getting approval from the Bangko Sentral ng Pilipinas (BSP).
Last March, the Philippines successfully issued its first RMB-denominated “panda bonds” and the P12billion proceeds were deposited with the BSP as part of the country’s international reserves. As of April this year, China ranks first among all countries as the source of Philippine imports, and fourth in terms of exports to the Philippines.
Recently, the International Monetary Fund (IMF) included the RMB as part of the Special Drawing Rights or SDR, a reserve asset managed by the IMF. Its inclusion in this basket of currencies signals the yuan’s growing importance in the global economy.
RMB trading volumes are tripling worldwide, while its internationalization and associated deregulation will simplify trading and investment processes for multinational corporations and individuals alike.
To cite an example, a friend of mine opened an RMB- denominated account with Union Pay, a Shanghaibased credit and debit card institution, when she took her master’s degree in China’s major financial hub. Lately, when she travelled to Singapore, she was pleasantly surprised to get discounts of 20- 25% on retail purchases when she used her Union Pay card.
Following the go signal given by the BSP for local banks to develop a formal pesorenminbi spot market, transactions will soon be done without relying on the dollar. This would make foreign exchange trading between the two countries cheaper and more cost- effective, with pundits predicting an uptick in the number of companies using the yuan as settlement currency for international trade.
BOOKMAKER ON A ROLL
The Financial Executives Institute of the Philippines (FINEX) has signed an agreement with Media Wise Communications, Inc., to produce its Golden Jubilee Book commemorating the first 50 years of the country’s premier finance organization.
FINEX President Ma. Victoria Espano inked the deal with Media Wise CEO Ramoncito Cruz and The Philippine Star columnist Alfred Yuson, who will serve as executive editor of the coffee-table book.
Media Wise recently won four awards during the International Association of Business Communicators’ 16th Philippine Quill Awards at the Manila Marriot Hotel in Pasay’s Newport City. Three of its publications won the 2018 Quills, namely: the centennial books of Philippine National Bank and St. Andrew’s School of Paranaque, as well as the biography of multi-awarded coach Virgilio Dalupan titled “The Maestro
of Philippine Basketball.”