Will RMB soon beat USD as the main currency for cross border trade?

The internationalisation of RMB is providing banks with opportunities to enhance their cash management structures in the face of a USD liquidity shortage - but does a shortage really exist till now?

ABF: How is the USD liquidity shortage hurting cash management in Asia?

DBS: Ken Stratton, Global Head of Sales, Global Transaction Services
I do not believe that the USD liquidity shortage is really hurting many banks’ cash business as such, but I am hearing in the market that some banks are encountering challenges accessing USD customer balances to meet their USD-based trade finance funding needs. Despite all of the issues around the fluctuating USD, and even with the significant increase in RMB trade flows, the dollar still represents the main currency in which international trade is denominated.

Citi: Ravi Saxena, Managing Director, Asia Pacific Trade Head, Global Transaction Services
The US liquidity shortage is a recent phenomenon that became acute around early Quarter 4. Now liquidity is actually coming back into the system. Obviously when liquidity is tight, then customers have the benefit when they are long on cash because they get better yields. But on the flip side, they also pay more on their borrowing. When liquidity is tight, banks need to pay a little bit more on the liability side and that would have some ramifications on the cash management business ; however there is also the natural hedge provided by the Trade business.

HSBC: John Laurens, Head of Global Payments and Cash Management
Corporates are reviewing the efficiency of working capital management processes and risk management structures. As part of this trend are more focused on good cash management disciplines.

Whilst traditionally USD has been the principal currency for cross border trade, with the internationalisation of RMB, corporates are increasingly looking to re-denominate their cross-border trade flows into and out of China into RMB. This is providing them with opportunities to enhance their offshore regional cash management structures to include their RMB positions, or to use the emerging offshore RMB bond and debt markets in Hong Kong for funding.