WITH China’s rising role as an economic powerhouse, the renminbi is fast becoming one of the top trading currencies. According to data generated by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), as at Oct 31, 2014, the renminbi ranked seventh as a global payment currency and accounted for 1.59% of global payments. This compares with 0.63% of global payments in January 2013 when it was at the 13th spot as a global payment currency. The US dollar take the top spot, accounting for 43.5% of global payments.
With the current trading trends, SWIFT’s managing director of Asia Pacific Eddie Haddad predicts that the renminbi could become one of the world’s top three trading currencies as early as the next five years.
“Over the past two years, renminbi payments worldwide have nearly tripled in value. In addition, the renminbi is now supported by a much broader base with 35% more financial institutions using the renminbi for payments with China and Hong Kong. Asia leads the way at nearly 40% adoption, with an increase of 22% since 2012,” Haddad tells The Edge in an exclusive interview.
“It is important that as the currency internationalises, the market infrastructure in the region can basically take renminbi payments into the system. Malaysia is right up there in terms of being one of the first to add that capability into their high value payment network,” he adds.
SWIFT’s statistics show that 15 more countries are now using the renminbi for more than 10% of their payments with China and Hong Kong compared to April 2013. In total, 50 countries out of the 161 that exchanged payments with China and Hong Kong in October this year have crossed this threshold.
The statistics also show that Germany increased its renminbi usage with China and Hong Kong by 151%. Renminbi payments by Canada (+346%) and Malaysia (+48%) are expected to grow even further following the latest announcements of a swap agreement and a memorandum of understanding (MOU) with the People’s Bank of China (PBC).
Just last month, Bank Negara Malaysia (BNM) signed an MoU with PBC on renminbi-clearing arrangements in Malaysia. The central bank said on Nov 10 that in supporting real economic activity, it recognises that the designation of a renminbi clearing bank is an important precondition for a pooling of renminbi liquidity in the Malaysian financial system as it enables financial institutions to achieve economies of scale to offer competitive financing products and meet the demands of businesses and individuals in Malaysia as well as in Asean.
With the Asean economic community due to kick-start next year, Haddad says integration is important. “To do that, you need interoperable messages — where one infrastructure has to talk to the other infrastructure. SWIFT can play a role there. We can provide that messaging layer for that interconnectivity,” he says.
“We are market neutral and we are not for profit. We are owned by the community. The banks actually own us. The way it works is that — the more transaction you put in the network by individual banks in the country, the higher the number of shares you get. And those shares represent ownership in SWIFT. Those shares are a pledge to a country and the country can have a board member if the share allocation is big enough,” he explains.
SWIFT formally supports the ASEAN Bankers Association and the ASEAN Working Committee on Payment and Settlement Systems with building awareness among regional stakeholders on cross-border integration, alignment of domestic financial market infrastructures and helping with the adoption of the ISO 20022 standard by 2020. “Among the items being discussed are cross-border credit transfers, IBAN (International Banking account Number), a regional market practice guide, and potential models for Asean payments,” Haddad notes.
SWIFT is a member-owned cooperative that enables its customers to automate and standardise financial transactions. It serves more than 10,500 banking organisations, securities institutions and corporate customers in 215 countries.
It provides a proprietary communications platform, and products and services that allow its clients to connect and exchange financial information securely and reliably.
According to its data, as at Sept 30, 2014, the world’s top 10 payment currencies in value were the US dollar, the euro, British pound, Japanese yen, Australian dollar, Canadian dollar, renminbi, Swiss franc, Hong Kong dollar and Thai baht.
The top three currencies in Asia-Pacific were the HK dollar, Australian dollar and yen.
SWIFT’s statistics reveal that as at Sept 30, 2014, Malaysia ranked 11th in terms of traffic volume in Asia-Pacific. It also notes that traffic volumes in Malaysia are mainly driven by payments and securities — a combined total of more than 90% - followed by treasury and trade.
Just last week, SWIFT launched its expanded corporate services centre in Kuala Lumpur that will house 10% of the group’s global staff of 2,000. It is the only global corporate services office outside its headquarters in Belgium. The official opening ceremony was attended by a number of guests that included Her Royal Highness Princess Astrid of Belgium and BNM governor Tan Sri Zeti Akhtar Aziz.
This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.