China has been actively promoting the use of renminbi (RMB) in cross-border trade since it launched a pilot project in 2009. However, as yet many exporters and importers in the Middle East still remain unaware or unconvinced about the benefits of settling trade deals with their Chinese customers in RMB.
A representative from a Chinese firm active in the region told delegates at an HSBC RMB workshop held in Dubai that the RMB account it opened for the region remains virtually unused. In contrast, the company has conducted several RMB transactions with clients in Southeast Asia and Africa.
The GCC countries with currencies pegged to the dollar are the least likely to see the advantage of closing trade deals in RMB. Traders in these countries effectively have no exchange risk when settling trade deals in dollars, so do not see the benefit in closing transactions in RMB.
Interest in Middle Eastern countries with currencies not pegged to the dollar is slightly greater, as traders are exposed to currency fluctuations between their domestic currency and their trade settlement currency, be it the dollar or RMB.
Regardless of whether the country’s currency is pegged, closing deals in RMB can bring financial benefits to regional traders.
Chinese exporters often factor in the cost of the foreign exchange risk into the prices they charge international customers. Closing deals in RMB could persuade Chinese companies to discount their prices. So far, such benefits have yet to be widely recognised in the Middle East.
But with China’s importance as a trading power continuing to grow and the prospect of the RMB becoming a major reserve currency once it has become fully convertible, Middle East traders would be wise not to ignore the rising influence of renminbi.