Currency Confidence

　　China’s currency Renmimbi (RMB) can be expected to settle 15 percent of the trade betweenChina and South Africa and China and Africa from 2016.A brave prediction, but one which Bank of China (BOC)Johannesburg Branch CEO Qiu Zhikun is confident willtranspire.

　　The forecast was made in Johannesburgat theinaugural 2013 First South Africa-China Capital MarketForum, held in August to focus on collaborative opportunitiesin the counties’ capital markets.

　　RMB in Africa

　　BOC Johannesburg Branch first offered RMB services inAfrica in 2010, accumulating to a current total of 3.35billion yuan ($547 million). The RMB services includesettlement, clearing, loans, deposits and exchange. Thebank has since opened more than 1,000 RMB-basedaccounts across 20 countries in Africa.

　　In the first quarter of 2013, BOC Johannesburg’s RMBbusiness volume in Africa reached 370 million yuan($60.5 million), a 298-percent increase over the previousyear. This figure accounted for 4.4 percent of thebank’s $1.4 billion total trade settlement volume duringthat period. Based on this trend, the business can be expectedto reach 900 million yuan ($147 million) throughthe remainder of 2013, BOC Johannesburg DeputyManager Li Feng told ChinAfrica.

　　Figures from China Construction Bank (CCB) JohannesburgBranch, which also began providing RMBservices in 2010, reported similar growth in RMB-fundedservices.

　　Gaining ground

　　Qiu’s prediction is largely based on rapidly increasingChina-Africa bilateral trade ($198.49 billion in 2012)and investment, which has provided thefoundation and created demand for crossborderRMB settlement on the continent.

　　The positive attitude of African governments,enterprises and banks toward RMBsettlements have also contributed greatlyto business growth on the continent.

　　“Some African countries are showingincreasing interest in potential opportunitiesarising from RMB trade settlement,” said theIMF’s African Department senior economistArmando Morales. Nigerian banks started toallow cross-border business settlements in RMB in April2012, and Kenyan President Uhuru Kenyatta has promisedto host an RMB clearing house in Nairobi.

　　Morales said that there are more than 1,500 Chinesefirms now trading with 18 African countries, and thatSouth Africa still handles most RMB settlement businessin Africa, followed by Mauritius. In 2012, some $5.7 billionof China-Africa trade was settled in RMB and it can beexpected to reach $15 billion by 2015 if the growth momentumis sustained, according to a Standard CharteredBank report.

　　BOC Johannesburg now provides RMB clearing servicesfor ABSA and Nedbank in South Africa, AfrAsia Bankand State Bank of Mauritius in Mauritius, Barclays andRaw Bank in Congo, and is discussing about a clearingbusiness with Tanzanian’s CRDB bank, Uganda’s DFCUbank and Botswana’s Barclays bank.

　　In Sub-Saharan Africa, the bank has Chinese businesscounters or offices in Ghana, Kenya, Angola and Uganda,and is now preparing to set up a sub-branch in Durban,South Africa and Mauritius, and an office in Nigeria.

　　CCB Johannesburg is also pushing the business alongsteadily through its joint-venture Rand Asia and businesspartner First Rand. Yun Weihua, head ofMarketing and Relationship Management ofCCB Johannesburg and Deputy CEO of RandAsia, said that RMB business will grow evenlarger as related policies become more liberaland local people gain a better understandingof RMB settlement.

　　Multiple benefits

　　While it is clear RMB settlements are gainingmomentum, what are the benefits of usingthe Chinese currency in this manner? Li saidone of these benefits is that it helps to facilitateinternational trade and investment andpush forward RMB globalization in Africa in general.The use of RMB may help African countries reducethe risks and pressure caused by the fluctuation oftraditionally used currencies and thus keep trade andinvestment more stable.

　　If Johannesburg becomes an RMB settlement center,it will win itself an advantageous position in the newemerging order of the international financial market,and gain a larger share in the RMB market throughexpanding its RMB business in deposits, investments,bonds and securities and derivatives trade, Li said.Despite these benefits, RMB settlement still takes upa small portion in total settlement. “The U.S. dollar willprobably remain the preferred settlement currency forcommodity trading,” said Morales.

　　He said this is because national banking systemsmay not be ready to adapt to RMB settlement toorapidly because of lack of liquidity both in RMB marketsand in the international market. Another reason forRMB’s small slice of the settlement pie is that mostAfrican countries are currently in a trade deficit withChina and may not have a sufficient RMB balance to payfor that trade.

　　“As RMB has not yet flowed freely among Africancountries, this further reduces people’s desire to usethe currency in trade,” Li said.

　　Currently there is no currency swap agreementavailable between China and African countries, Li said,explaining why RMB is not yet a widely used currency.He said the RMB is not fully convertible, and the anticipationfor RMB appreciation also makes some importersreluctant to pay in the currency.

　　RMB globalization - when?

　　It is generally believed that RMB globalization will evolvevia three phases: as an international settlement currency,an investable currency and a reserve currency.Based on the “three-step principle,” Africa is now in thesecond phase, Li said.

　　Some African governments and central banks arebeginning to use RMB as foreign exchange reserves,such as Nigeria, which has raised its RMB foreignreserves to 10 percent, while the South African ReserveBank is upping its RMB figure to about 3 percent of thecountry’s total foreign exchange reserve.

　　In respect to the specific timeframe RMB internationalizationwill be realized, Morales said the pace willdepend on decisions by the countries experiencingincreasing commercial and investment links with China,as well as the Chinese Government’s policies in thisregard.

　　While the RMB should first realize regionalization inAfrica before internationalization, Morales believes theRMB going global is already within the realm of possibility,seeing that the currency was ranked 11th in globalpayment currency in June 2013, just four years after itwas first used as an international settlement currency.

　　Whether RMB globalization comes about in 2015,as predicted by some financial experts and media, ornot, the question posed on the Renminbi Services pageof the Standard Chartered Bank website needs to beforemost in the minds of all role players: “Are you readyfor what’s next?”