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Analysis of the pilot settlement of cross-border trade in RMB
In July this year, Chinese banks took the initiative to test water by exploring new methods in cross-border trade. This marked a positive signal for the development of RMB settlement in international trade, especially in early September when three foreign banks, including HSBC Bank (China) Co., Ltd., announced that they had successfully completed cross-border trade transactions under the RMB settlement system.
HSBC China has been actively involved in conducting RMB-based trade settlements within its pilot cities, such as Shanghai, Shenzhen, Guangzhou, and Dongguan. The services include RMB remittances, cross-border trade settlements, and documentary credit transactions. As one of the leading local foreign banks, HSBC plays an important role in promoting the use of RMB in international trade.
This article will explore the origins of RMB cross-border trade settlement, the current scope of the pilot program, its impact on businesses, and future prospects. Although the RMB settlement system is still in its early stages, it is not entirely new. The idea of using the RMB as a global trade currency has long been discussed and supported by solid foundations.
For example, since 1996, China has allowed full convertibility of the RMB under the current account. In border regions like Yunnan and Guangxi, the RMB has been widely used in trade for many years. Since 2004, Hong Kong and Macao have also played a key role in facilitating RMB trade. Additionally, the People’s Bank of China has signed currency swap agreements with central banks in countries such as Malaysia, Indonesia, and Argentina to encourage the use of RMB abroad.
The global financial crisis triggered by the subprime mortgage crisis created a real demand for RMB in cross-border trade. Domestic companies are now more inclined to use the RMB instead of major currencies like the U.S. dollar or euro to avoid exchange rate fluctuations. At the same time, overseas partners are increasingly open to using the RMB due to its stability.
On April 8 this year, the State Council approved a pilot program for RMB cross-border trade settlement, marking the beginning of expanding RMB usage from border trade to general international trade. As of the end of September this year, the pilot areas approved by the State Council include Shanghai, Guangzhou, Shenzhen, Zhuhai, and Dongguan. Overseas pilot regions consist of Hong Kong, Macao, and the ten ASEAN countries.
Currently, only domestic companies can conduct RMB trade settlements with businesses in these designated regions. By the end of September, 365 enterprises across the country had received pilot qualifications. For overseas businesses, there are no strict thresholds — as long as they have trade relationships with Chinese pilot companies, they can use RMB for settlement.
To further promote the growth of RMB cross-border trade settlement, officials from the central bank have stated that the next step will be to expand the pilot program after improving the relevant policies and supporting systems. This includes expanding the number of pilot cities domestically, broadening the overseas pilot regions, and increasing the number of participating enterprises. In the future, small and medium-sized enterprises (SMEs) may also join the pilot program.
The settlement methods used in international trade are equally applicable to RMB cross-border trade. These include letters of credit, documentary collections, credit sales, and advance payments. However, all transactions must be declared and settled in RMB. International practices remain in place, such as the application of ICC Publication No. 600 for letter of credit transactions and ICC Publication No. 522 for collection business, ensuring consistency with global standards.