Yuan Snubbed by U.S. Firms as Rivals Embrace Currency

U.S. companies lag behind global peers in using the yuan for international trade, leaving them at a disadvantage as the Chinese currency plays a bigger role in cross-border transactions, according to HSBC Holdings Plc.

Only 9 percent of the 102 U.S. business leaders surveyed by HSBC for a report released today said they had conducted cross-border yuan transactions. In comparison, 47 countries are using the yuan for more than 10 percent of their payments with mainland China and Hong Kong, according to the Society for Worldwide Interbank Financial Telecommunication.

Policy makers are loosening controls on the yuan and promoting broader use of the currency, also known as the renminbi, or RMB, to match China’s rising status in the global economy. Global yuan payments rose 24 percent in May from April, making it the 13th-most used currency in the world, according to Swift, the Belgium-based group that provides messaging services to banks. The euro was No.1, followed by the dollar and pound.

“RMB use is growing among global competitors,” Prabhat Vira, the head of global finance and trade receivables at HSBC, Europe’s largest bank, said in the statement. “To remain competitive, U.S. businesses may want to seize the renminbi opportunity now.”

Twelve-month non-deliverable forwards on the yuan held at 6.2712 per dollar today in New York, the highest level since June 17.

HSBC’s survey showed that two thirds of executives were either unaware of the benefits of using the yuan or hadn’t considered the option. Others cited a preference for the dollar and concerns about currency fluctuation and regulations that inhibit the yuan’s use.

Slowing Growth

Two consecutive quarters of slowing growth in China may curb trade and reduce demand for the yuan. China’s exports declined 3.1 percent last month from a year earlier, the biggest drop since 2009, while imports slipped 0.7 percent. The second quarter’s 7.5 percent expansion extended the longest streak of sub-8 percent growth in at least two decades.

Even so, HSBC predicts that more than 30 percent of China’s trade, or $2 trillion, will be settled in yuan by 2015, almost triple the current 10.5 percent.

By switching to the yuan for trades with their Chinese counterparts, U.S. companies can cut costs and hedge currency risks, London-based HSBC said in the statement.

In addition, 56 percent of Chinese business leaders in the survey said they would offer discounts of as much as 5 percent to their trading partners for yuan-denominated transactions.

In a separate report, HSBC said its survey of 711 businesses globally shows that 73 percent of the 128 corporates that use the yuan expect to increase their transactions in the Chinese currency. A quarter of the non-users plan to pay or receive the yuan, showed the survey conducted in China, Hong Kong, Singapore, Australia, the U.K., the U.S. and Germany in May and June.

Before it's here, it's on the Bloomberg Terminal.