HSBC streamlines cross-border yuan trade settlement in China

HONG KONG, March 26 Tue Mar 26, 2013 2:41am EDT

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HONG KONG, March 26 (Reuters) - HSBC has implemented a yuan cross-border trade settlement solution for a Fortune 500 company in China, providing a centralised approach to cash management, which is expected to lead more foreign corporates to adopt the yuan in international trade.

The move enables Chinese subsidiaries of the global leader in power and automation technologies to use yuan to settle cross-border payments and collections with their parent company's overseas treasury centre.

It not only significantly reduces foreign exchange exposure and optimises liquidity management for the company, but sets a precedent for other multinational companies (MNC) that will help boost circulation of the yuan outside mainland China.

"This is a treasury management technique practiced by many large MNCs around the world and we are pleased to be the first bank to extend this to RMB," Kee Joo Wong, HSBC's head of global payments and cash management in China, said in an email reply to Reuters.

Before the new model was introduced, the company had to settle each transaction with its overseas counterparty directly, resulting in transaction costs and a lack of central monitoring and control over the payments process at the group level, Wong said.

Transactions from individual entities overseas are now consolidated twice a month by the treasury centre for payments into China. HSBC China will then disburse the funds to each subsidiary in China as payments of export goods and services.

China initiated the yuan trade settlement scheme in 2009, aiming to promote the international use of its currency. It accelerated the expansion pace at the beginning of the year, taking up about 16 percent of the world's No.2 economy's total trade in February.

HSBC expects 30 percent of China's total trade flow, or around 50 percent of bilateral trade with emerging market countries, to be settled in yuan within the next three years, which would make it one of the top three currencies used in global trade.

The yuan is ranked the 13th most widely used world payment currency after surpassing the Russian rouble in January with an all-time high market share of 0.63 percent, according to global transaction services organization SWIFT.

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