- Business Advantage
(Vancouver, B.C.) – Today AdvantageBC has released the results of a recent study, “Potential Benefits of a Canadian-Based RMB Settlement Centre,” as the organization participates in a seminar held by the Agricultural Bank of China on Cross-Border Renminbi business. AdvantageBC President and CEO Colin Hansen is set to speak at the event, and will share some details regarding the study’s findings. The report concludes that there is significant and growing interest in the establishment of a Canadian-based hub for direct settlement of trade using Chinese currency, the Renminbi – and that such a centre would be in Canada’s and BC’s interest.
According to the study, researched and written by Vancouver’s MMK Consulting, being able to settle trade accounts between Canada and China directly between the Canadian Dollar and the Renminbi — without the US Dollar as the intermediate currency — could provide currency savings, discounts and other efficiencies that could lead to increased bilateral trade and other benefits to the Canadian economy.
“The potential impact on China-Canada trade from the currency exchange savings associated with of eliminating the need to use US dollars … is estimated as being up to $480 million in additional Canada-China trade — including up to $120 million in additional BC-China trade,” said Hansen. “This estimate is conservative in that it is before considering the possibility of “tighter” contract pricing behaviours resulting from increased use of RMB denominated contracts, leading to additional increases in trade volumes.”
The study cites the traditional use of the US dollar as the common currency for international commercial transactions, particularly for commodities, and the reluctance of businesses to be the first to take the risk of designating contracts in RMB, as being the main barriers to greater use of the RMB as a frequently-used currency in China-Canada trade.
The study concludes there are several potential benefits to Canada and other companies involved in business between Canada and China that could come as a result of locating an offshore RMB Hub in this country and allowing for direct settlement using the Chinese currency. These include:
The study was conducted partly through interviews with Vancouver-based financial services industry representatives, including Canadian and Chinese banks and BC-based exporters to China. It also analyzed of the potential economic impact of direct CAD-RMB currency exchange rate savings, including its positive effect on bilateral trade volumes.
In summary, Hansen explains that “the potential benefits of an RMB settlement/service centre, like increasing Canada-China international trade, are seen as being very significant – not only in terms of reducing currency transaction costs, but also increasing the overall convenience and efficiency of international CAD-RMB payment transactions.”