RMB Tracker SIBOS special edition. Sydney shines the spotlight on innovation, payments and RMB

Transcription

1 RMB Tracker SIBOS special edition Sydney shines the spotlight on innovation, payments and RMB

2 Contents Foreword 3 1. Executive summary & key insights 4 2. Australia deepens financial integration with China China & Australia grow economic partnership through trade relations Sydney s RMB offshore centre delivers RMB capabilities for Australian corporates ASX s RMB Settlement service powers Australian RMB offshore settlement capabilities 9 3. Australia A dynamic and innovative payment landscape Australia s New Payments Platform (NPP) the new normal for domestic real-time payments Real-time & gpi delivers payments in seconds Sydney s fintech capability A vibrant and robust ecosystem Payments made in RMB offers numerous opportunities for corporates Australia s economic linkages with China and the Asia Pacific Appendix: RMB payments guide for corporates 19 SWIFT Leah Capili Sarah L Ortye Laetitia Moncarz Michael Moon Astrid Thorsen Eric Yang Note to the reader Please note that RMB and CNY are mentioned in this analysis. The Renminbi, RMB in the short form, is the official currency of the People s Republic of China. The yuan is the basic unit of the renminbi, but is also used to refer to the Chinese currency generally. CNY is the ISO code for Renminbi. 2

3 Foreword RMB Tracker SIBOS special edition Alain Raes Chief Executive, APAC & EMEA, SWIFT I am delighted to present a special edition of the SWIFT RMB Tracker for Sibos 2018, which takes place in Sydney from October. The tracker offers a monthly ranking of the Renminbi (RMB) in relation to other currencies worldwide. Special editions, such as this report, provide in-depth insights into how currencies are used for payments in a particular segment of the market or geographical area. This SIBOS special edition focuses on the RMB and its adoption for global trade. This report delivers an overview of the Australian payments landscape, a highlyinnovative ecosystem that boasts an increasingly diverse and dynamic profile of fintechs. It is an ecosystem that has welcomed a number of payment technologies in recent years, such as SWIFT s Global Payment Innovation (gpi), the New Payments Platform (NPP) and the ongoing instant crossborder SWIFT gpi payments pilot. This report also provides key insights into flows between China and Australia, and RMB usage between both countries. Australia is a strong advocate of the RMB as a payment currency, as evidenced by the dynamism of its RMB offshore centre in Sydney and the Austraclear RMB platform which is serviced by the Australian Securities Exchange (ASX). Usage of the RMB for payments between the two countries is growing steadily, and now accounts for 13.89% of all payments between Australia and either China or Hong Kong. The strong trade relationship between both countries (almost a quarter of trade volumes in Australia) has led to increased RMB usage in Australia. Another key growth driver of RMB usage is the China-Australia Free Trade Agreement (ChAFTA), which came into force in Globally, China continues to grow its influence, mainly through infrastructure development, a key component of the massive Belt & Road Initiative (BRI) that was launched in Through the financing of projects and companies involved in the BRI, the initiative is set to increase financial and payment flows along the maritime and Silk roads, and eventually lead to an acceleration in RMB internationalisation. SWIFT has an important hand to play in this and provides the financial and digital infrastructure necessary for the development of businesses and trade growth across BRI markets, in the following areas: Reach and connectivity: Financial institutions across the BRI are connected to SWIFT and use SWIFT gpi for efficient and fully-traceable payments transactions. Optimised products and services: SWIFT offers a suite of business intelligence, reference data, financial crime and compliance services. These serve as important tools for strategic decisionmaking, and also allow financial institutions to monitor their transactions. Community and standards: Through the SWIFT community, financial institutions enjoy standardised messaging and regulator engagement. This special edition includes an RMB Payments Guide for corporates, an initiative that was jointly developed by Bank of China (Hong Kong), BNP Paribas, Citi, Commerzbank, Deutsche Bank, HSBC, Standard Chartered Bank and SWIFT, to explain the main features of the RMB as a payment currency and to address the complexities surrounding it. I hope you find this special edition of the SWIFT RMB Tracker insightful. 3

4 1. Executive summary & key insights From a payment perspective, Australia is a highly-innovative ecosystem. Recent developments include the launch of the New Payments Platform (NPP) and the implementation of SWIFT gpi by four of the country s largest banks 1, and many branches or subsidiaries of foreign banks 2. As an extension of SWIFT gpi, SWIFT is now working with these Australian banks and a group of banks from China, Singapore and Thailand to test a new cross-border real-time payments service over gpi. The test sees the introduction of a set of incremental rules that has been defined on top of SWIFT gpi. The rules remove residual friction normally encountered in cross-border payments, and allows these payments to extend into domestic real-time payment systems. The initial trial focuses on cross-border payments going into Australia s NPP, and the service has been designed to scale and integrate with other real-time payment systems globally. Initial test results will be shared at Sibos 2018, in Sydney. The two-ways trade relationship between Australia and China reached A$174 billion (US$125 billion) in FY2016/17 4. This accounts for almost a quarter of total trade volumes in Australia. The trade relationship between both countries is also reflected in the keen RMB internationalisation efforts in Australia, comprising mainly of two models that facilitate RMB payments with Australian counterparties. They are Sydney s RMB offshore centre and the Austraclear RMB platform serviced by ASX. The RMB offshore centre in Sydney was launched in 2015, following the appointment of the Bank of China in Sydney as the RMB clearing bank for the local RMB market in Australia. The offshore centre is the eighth largest globally, and accounts for 1.08% of all global RMB offshore flows. ASX RMB Settlement Service, on the other hand, allows payments that are initiated within the country to be settled domestically through ASX s Austraclear settlement platform in just seconds, and to and from Hong Kong and China within minutes. The ASX RMB Settlement Service plays an important role as a platform to connect the banks and offset different transactions processed during the day. 23% Trade 3 between Australia and China reached A$174 billion in 2016/17, accounting for 23% of total volume in Australia 4. 98% China Briefing reported that more than 98% of Australian goods exported to China are duty-free or enter a preferential rate because of the ChAFTA % The Australian dollar is the main currency used for payments between Australia and either China or Hong Kong. The RMB is now used for 13.89% of total payments. 5th RMB 6 billion 4 The RMB is ranked fifth as an international payment currency, accounting for 1.89% of the value of institutional and commercial payments. Over RMB 6 billion has been settled through the ASX RMB Settlement Service in FY2017/18. The number of transactions settled is four times what was settled in the year before. 1 The Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac Banking Corporation (WBC) 2 Such as Bank of China or HSBC 3 Two-way trade between Australia and China australias-export-performance-in

5 2. Australia deepens financial integration with China RMB Tracker SIBOS special edition 2.1 China & Australia grow economic partnership through trade relations a. Trade Despite the recent strain in relations between Australia and China, trade between both countries continue to thrive. Two-way trade between Australia and China reached A$174 billion (US$125 billion) in FY2016/17, accounting for 23% of the total trade volumes in Australia 5. This figure is more than double the two-way trade figures for the country s next-largest trade partners, Japan and the United States, which registered A$68 billion and A$66 billion, respectively. Australia s exports to China totalled A$110 billion in FY2016/17, or about 30% of the country s entire exports, according to Austrade 6. The value of these exports has grown significantly, rising by 37% from last year. China is also Australia s largest source of imports, with volumes totalling A$64 billion. One of the key drivers of growth is the China- Australia Free Trade Agreement (ChAFTA), which came into force in December 2015, and which has dramatically expanded trade and investment levels between the two countries. China Briefing 7 reported that more than 98% of Australian goods exported to China either enter country duty-free or at a preferential rate because of the ChAFTA. Australian exports such as coking coal, wine, beef, and dairy are expected to grow substantially as tariffs are gradually eased. New opportunities are likely to open up for exports such as pharmaceuticals, vitamins, and health products once tariffs are fully eliminated in January Australian Trade Minister Steve Ciobo reaffirmed Australia s commitment to strengthen the trade partnership between the two countries during a recent visit, reported China Briefing 7. Austrade observed that the composition of Australian exports is dominated by resources and fuels, and in the case of China, this is made up largely by iron ore, coal and natural gas exports. According to the Reserve Bank of Australia (RBA) and the Australia Bureau of Statistics, services-related exports between Australia and China are on an upwards trend, reaching US$11 billion in FY2016/17. This makes China the largest services export market for Australia. The Reserve Bank of Australia governor, Philip Lowe said in May 2018 that China is likely to remain as Australia s largest export destination. Lowe also shared optimism around the broadening and deepening of Australia s economic relationship with China. Australia: Direction of exports, NZ 3.8% India 5.1% US 5.6% EU 9.8% RoW 9.9% Source: ABS and Austrade. Other NE Asia comprises South Korea, Hong Kong and Taiwan. *NE stands for North East # RoW stands for Rest of the world NE Asia* 65.9% ASEAN 11.3% Japan 12.0% Other NE Asia 13.0% China 29.6% 5 Two-way trade between Australia and China

6 2. Australia deepens financial integration with China (continued) Lowe explained that there are many misconceptions around the Australian-China trade relationship, such as the common adage that Australia exports resources to China and in return, import manufactured goods. But this is a misconception. Even though resources account for about two-thirds of Australia s exports to China, trade remains diverse across many individual categories. Australia now exports more to China than to any other single destination. In tourism, for instance, Chinese visitors tend to stay longer in Australia and spend more money than other visitors. Tourism Research Australia statistics indicate that Chinese spending now accounts for around 25% of total visitor expenditure in Australia. Meanwhile, education exports to China make up around one-third of Australia s total education exports. China has also become the largest single export market for a range of Australia s manufactured food items. Australia consistently ranks as the secondlargest recipient of global Chinese direct investment 8. Aside from commercial real estate and infrastructure, Chinese investors are increasingly focusing on consumptionrelated sectors such as healthcare and agribusiness. From a global trade perspective, China may be Australia s most important partner by far. Despite being in decline, traditional documentary trade finance remains core part of the underpinning trade flows. When we take a closer look at Australian flows for traditional documentary trade instruments such as letters of credit, we are seeing a different picture. SWIFT data shows that Australia is mainly importing goods and services from China, South Korea and Taiwan. According to World Top Exports 9, the most important goods imported are: vehicles, machinery (including computers) and mineral fuels (including oil). Major corridors with Australia for Traditional Trade Finance Live and delivered, MT 700 and 760 sent or received, excluding central banks, by volume YTD Aug 2018 Top countries where Australia is importing from (Message sent) China South Korea Taiwan Thailand India Hong Kong Japan In Thousands Italy Singapore Top countries where Australia is exporting from (Message received) Pakistan In Thousands From an export perspective however, South Korea, China and Taiwan are the most important partners of Australia for traditional trade. 0 South Korea China Taiwan Sri Lanka Bangladesh India Hong Kong Indonesia Singapore Vietnam Source: SWIFT BI Watch 8 According to Austrade reports, Chinese investment into Australia reaching approximately US$65 billion in

7 RMB Tracker SIBOS special edition b. Payments i. Payment trends by currency and payments in and out of Australia Top corridors of Australia for commercial payments Live and delivered, MT 103 sent and received, excluding central banks, by volume YTD Aug 2018 The United States is Australia s most important partner when it comes to payments and accounts for 22.35% of its total payments volume, according to SWIFT data. In second place is the United Kingdom at 17.87%. China ranks third at 10.38%. Others 39.20% United States 22.35% Top countries where Australia is receiving payments from However, there is a disparity between payment and trade numbers. This could be due to the need for documentary trade products when it comes to managing commercial relationships in some countries. SWIFT gpi, launched in 2017, has seen strong adoption in both Australia and China and has allowed for cross-border payments between both countries to become more efficient, transparent and traceable. The four major banks in Australia are now operating on SWIFT gpi, and in China more than 70 banks have joined SWIFT gpi. Singapore 4.63% Others 34.87% China 10.38% New Zealand 5.58% United Kingdom 17.87% United States 36.60% Top countries where Australia is sending payments to ii. A closer look at the RMB as a payments currency SWIFT YTD August data shows that 13.89% of payments between Australia and China & Hong Kong are now settled in RMB. This is higher than expected, given that global RMB usage makes up just 1.89% (YTD September 2018). As mentioned earlier in the text, the strong trade relationship between both countries (almost a quarter of trade volumes in Australia) has led to increased RMB usage in Australia. Germany 3.94% Hong Kong 4.35% United Kingdom 12.42% New Zealand 7.81% Top currencies used for commercial payments between Australia and China/Hong Kong Live and delivered, MT 103 sent and received, excluding central banks, by value YTD Aug 2018 For comparison, the US dollar which registers a 38.66% share of global payment flow, sits at just 23.87% on the same corridor. The Australian dollar is the most widelyused currency along the Australia-China and Australia-Hong Kong corridors at 31.46%. JPY 7.55% HKD 11.97% Others 11.25% AUD 31.46% CNY 13.89% USD 23.87% Source: SWIFT BI Watch 7

8 2. Australia deepens financial integration with China (continued) 2.2 Sydney s RMB offshore centre delivers RMB capabilities for Australian corporates In 2015, the Bank of China in Sydney was designated as an RMB clearing settlement bank. The market has since grown significantly, and in 2015, the government of New South Wales announced a target to settle 20% of Australian business transactions with China through the RMB by According to SWIFT data, the Sydney offshore centre is the eighth RMB offshore centre globally by volume, and manages 1.08% of global RMB offshore flows. Top 15 offshore RMB economies by weight - YTD Aug 2018 vs YTD Aug 2017 MT 103 and MT 202 sent and received. Based on value. Excluding China. Hong Kong 75.33% 76.22% United Kingdom Singapore 4.59% 4.37% United States 2.49% 2.54% 5.79% 5.42% Australian corporate treasuries have incorporated the RMB into their existing suite of global currencies, for trading, investing and financing, servicing both direct and indirect flows with China, in the same way other global treasuries have done. South Korea Taiwan 2.44% 2.9% 2.34% 2.29% In addition, Australian banks play a key role in bridging the knowledge gap and acting as an intermediary, to bring together an essential cohort of expertise necessary to support the expansion of Australian corporates into China. The fast expansion of Australian companies into Asia has led to the establishment of regional offices in markets like Hong Kong, Singapore and China by major Australian banks in order to better support their customers. Initially, the usage of RMB was driven by one-way settlement of imported goods from Chinese suppliers. Over time, the changes made to China s regulatory policy on trade and the increased number of Australian companies operating within China, have led to an larger demand for structure trade finance, discounting documentary letters of credits and trade advances denominated in RMB. Australian banks have limited access to liquidity instruments denominated in RMB intraday within the Sydney Financial Centre, and as a result there is a high dependency and in some cases, an increased need for Australian banks to work with more liquid offshore hubs such as Hong Kong and Singapore. 10 According to the New South Wales Premier Gladys Berejiklian at the first RMB Global Cities Dialogue in Sydney in France 1.43% 1.54% Australia 1.12% 0.93% Japan* 0.79% 0.77% Germany 0.76% 0.65% Luxembourg 0.48% 0.33% Belgium* 0.30% 0.29% Netherlands* 0.28% 0.29% Macau 0.26% 0.24% Canada 0.26% 0.24% YTD Aug 2018 YTD Aug 2017 *Non Clearing centres Source: SWIFT BI Watch

9 RMB Tracker SIBOS special edition 2.3 ASX powers Australian RMB offshore settlement capabilities Launched in 2014 with Bank of China (Sydney), the official RMB clearing bank, the Australian Securities Exchange (ASX) s RMB Settlement service is well positioned to help facilitate the burgeoning levels of Australia- China trade and investments. Over RMB 6 billion has been settled through ASX RMB Settlement Service in FY2017/18 and the number of transactions settled is four times what was settled the year before 11. The ASX RMB Settlement service differentiates itself with its multi-currency capabilities, forthcoming SWIFT gpi functionality and near real-time payments settlement finality. Payments in RMB are settled domestically in Australia over the ASX RMB Settlement Service within seconds, and to and from Hong Kong and China within minutes 12. ASX RMB Settlement Service flows Customer (In Australia or China) Austraclear Participant with RMB account at Bank of China (bank or customer) Customer (In Australia or China) Austraclear Participant with RMB account at Bank of China (bank or customer) ASX is also looking to further complement the Austraclear AUD and RMB settlement platform with the US dollar. Users of the service will be able to link up to SWIFT s gpi and SWIFT messaging is used for the transactional link between ASX and the Bank of China (Sydney) as well as for the messaging interface for Austraclear participants. The Austraclear platform will be able to pass on the gpi Unique End to end Transaction Reference (UETR) information from November This will add to the cross-border settlement efficiency that the platform already brings to its users. In addition, ASX will also enhance the Austraclear platform by adding a new RMB depository capability, enabling Austraclear participants to issue, hold and transact in RMB-denominated securities directly over Austraclear. As further currencies are added to the payments platform, Austraclear will also support issuing, holding and transacting in that currency. SWIFT (transfer and confirmation) Austraclear Credit Debit Participant cash record Real-time settlement Participant account Bank of China Participant cash record Participant account Source: ASX 11 Austraclear statistics provided by ASX 12 From actual observed client usage 9

10 3. Australia A dynamic and innovative payment landscape 3.1 Australia s New Payments Platform (NPP) the new normal for domestic realtime payments The payments landscape in Australia is evolving rapidly, and 2018 has seen a multitude of developments in the payments industry. One of its largest initiatives was the public launch of Australia s New Payments Platform (NPP) in February 2018, which vaulted Australia into a leading position globally for real-time consumer, business and government payments. The NPP enables the near real-time transfers of money at any time of the day using simple addressing known as PayID, which is a proxy for a BSB 13 /Account number using an address, phone number, Australian Business Number or Business Identifier. The NPP also takes advantage of the ISO standard to offer enriched data throughout the entire payment journey, from payer to payee. The NPP is a major industry initiative collaboratively developed by 12 financial institutions 14 and the Reserve Bank of Australia (RBA). SWIFT helped to design and build the NPP, and continues to play a key role in operating the infrastructure. According to consulting firm PWC, the NPP could become an alternative to credit card scheme transactions in the long run, due to its open and flexible design. An equally or perhaps more important feature of the NPP is its enablement of data-rich payments, allowing senders to provide up to 280 characters of remittance information, compared to the original 18 characters. This allows processes such as payment reconciliation to be simplified, and insights could be used to provide more targeted or customised offerings in sectors such as healthcare or superannuation, for example. The RBA also noted that the NPP infrastructure supports the development of Overlay Services to offer innovative payment options to end-users. Overview of NPP infrastructure Ordering Customer Orderer s Participant Bank Beneficiary Customer Beneficiary s Participant Bank Branch Addressing Database Branch Mobile Phone Payment Gateway Clearing Request & Notification 1 Payment Gateway Mobile Phone Internet Internet Services 2 Services Applications Settlement Request & Notifications Applications Payer bank Payee bank Basic Infrastructure Payment Gateway Reserve Bank of faustralia 13 BSB stands for Bank state branch 14 Australia and New Zealand Banking Group, the Commonwealth Bank of Australia, the National Australia Bank, Westpac Banking Corporation, Australian Settlements Limited, Cuscal, Indue, Bendigo and Adelaide Bank, Citigroup, HSBC Bank Australia, ING Australia, Macquarie Bank and the Banking department of the Reserve Bank. 10

11 RMB Tracker SIBOS special edition 3.2 Real-time & gpi delivers payments in seconds Australia and China enjoy a strong economic relationship, in part due to the sizeable Chinese community living in Australia. Excluding the British, the Chinese are the oldest continuous immigrants to Australia, with the arrival of the first migrations dating back to the early 1800 s. The Chinese community in Australia is also growing as a result of the healthy numbers of mainland Chinese students entering the country on a short term basis to study in educational institutions around Australia. Chinese tourists are also contributing significantly to cross-border flows. In 2017, Australia welcomed over 1.3 million Chinese visitors. Aside from corporates-related commercial flows, there is a pressing need for an efficient network to support retail payments flows such as the remittance of university fees and expenses incurred by Chinese tourists. SWIFT gpi real-time offers a fast and transparent means to do so. SWIFT gpi is already fast, with payments being credited to end beneficiaries in minutes, even seconds. SWIFT is now starting to test its new instant cross-border SWIFT gpi payments service in the Asia Pacific region 15. The trial follows workshops held earlier this year with leading banks from China, Australia, Singapore and Thailand, which will use a set of rules defined in consultation with the banks. These rules are incremental to the gpi rulebook and removes residual friction in cross-border payments to enable faster straight-through processing. Today a payment from China into Australia sent at the end of the day is typically settled the next day, however this new service will provide near-instant availability of funds even with transactions made after usual business hours. While other real-time systems will be added in due course, this initial trial is focussed on cross-border payments going into Australia. Domestic payment processing will be enabled through the NPP, Australia s new real-time payments system. Cross-border payments from China to Australia and also the Singapore-Australia and Thailand-Australia corridors will be tested, and initial trial results will be announced at Sibos The service leverages existing investments, standardises connectivity across multiple markets and drives efficiencies in support of cross-border trade. Once live, the service will introduce significant benefits that extend beyond gpi banks and their customers in time resulting in a complete real-time crossborder payments experience for all bank customers in the region, improving customer experience and allowing for faster peer-topeer remittances and SME trade settlement. We are continually looking for opportunities to deliver better customer experiences, and are pleased to be taking a lead role in developing realtime cross border payments. NAB s 24/7 real time clearing capability through NPP will allow international payments to be processed outside usual business hours, and crucially will allow us to support later cut-off times for same day payments from many time-zones. Paul Franklin, General Manager Payments, NAB 15 Press release - SWIFT tests instant cross-border gpi payments in Asia Pacific - 23 August

12 3. Australia A dynamic and innovative payment landscape (continued) 3.3 Sydney s fintech capability A vibrant and robust ecosystem Alongside Singapore and Hong Kong, Sydney is recognised as an important fintech hub in the Asia Pacific. Nearly two-thirds of Australian fintechs are based in Sydney, according to KPMG s report Scaling the Fintech Opportunity published in 2017, and the number of Australian fintechs increased from 100 companies in 2014 to 579 by mid This growth was largely driven by local companies, with Australian firms representing nearly 90% of fintechs in Australia. Regtech, payments, and blockchain are key fintech areas where Australia has the potential to become an industry leader in. KPMG said that investment in Australia s fintech sector saw an upwards tick of global growth patterns in the first half of 2018, with US$63 million invested, up from US$56 million in the second half of four banks pass on their transaction, deposit, and debit and credit card data to other accredited financial services providers by July A global industry challenge was organised in Singapore last year which saw five fintechs spending two days in a problem-solving workshop with 40 senior payments executives from SWIFT gpi banks globally. Two winners were selected out of the five and are now working on a Proof of Values for two gpi overlay use cases. One of them is Assembly Payments, a fintech based in Australia that specialises in payments solutions via APIs. SWIFT, Assembly Payments and a group of gpi banks are currently developing a Proof of Value for a Cross-border Request for Payments overlay service. The advent of the Open Banking framework released by RBA was a key development in 2018 that could drive even faster growth in the fintech industry. Open banking will be a game-changer for consumers and businesses, Fintech Australia chair Stuart Stoyan told Banking Tech, and it will drive a new wave of fintech innovation and growth. The government has urged banks to introduce the first phase of open banking reform within 12 months. This will let customers of the big

13 4. Payments made in RMB offers numerous opportunities for corporates RMB Tracker SIBOS special edition The RMB might appear more complex than other currencies. However, it has matured significantly, providing interesting opportunities for corporates such as FX 17 optimisation and the facilitation of commercial discussions. With the growing importance of China in the global economic landscape and particularly in the context of the Belt and Road Initiative, more opportunities will emerge and the RMB and reinforced its role as the preferred currency for Chinese companies. Advantages of paying in RMB The advantages of paying in RMB are manifold when it comes to trade with China: Reduce costs: As there is no currency translation for the Chinese counterpart, the RMB is seen as a natural currency hedge to cover import-export flows. Facilitate commercial discussion: From a negotiation perspective, the RMB improves price transparency and facilitates commercial discussions with the Chinese counterpart, as well as offers possible supplier discounts. Provide access to a larger supplier base in China: Some suppliers only accept payments in RMB. Simplify internal processes: Trading in RMB offers a simpler trade documentation check process (versus foreign currency). Advantages of being paid in RMB Optimising FX risk management: Mainland China-based companies that use the RMB to sell goods will see savings made as no conversion costs are incurred. These savings could be substantial when dealing with currencies that have no direct quoted exchange rate with the RMB. Furthermore, there are additional savings to be made on FX hedging fees as receivables denominated in RMB offer a natural hedge with payables in RMB. More convenience: Chinese buyers who opt to use the RMB, their home currency, to transact with offshore companies will find that this simplifies the process to provide supporting documents to their banks for the payment. Better customer relationships: With the wider choice of invoicing currencies, Chinese buyers enjoy greater flexibility and also higher satisfaction from them. Increased customer base: This will broaden customer base and business opportunities as the overseas company can now access a larger pool of buyers onshore. Faster payment collection cycles: The simpler trade documentation process involved when using the RMB allows a corporate to expedite their collection cycles. Increased flexibility: Offshore-based corporates (with the exception of countries with local regulatory restrictions on foreign currency control) will find it possible to redeploy the RMB received with more flexibility: holding deposits and thus earning interest, or investing in RMB products (e.g. onshore/offshore capital markets) for yield enhancement or for RMB payables. Hedging RMB exposure is also made easier by leveraging the depth and breadth of CNY and CNH FX markets for optimal rates. Please refer to the Appendix the RMB payment guide for corporates a joint initiative by Bank of China (Hong Kong), BNP Paribas, Citi, Commerzbank, Deutsche Bank, HSBC, Standard Chartered Bank and SWIFT to explain the main features of the RMB as a payment currency and demystify the complexities surrounding it. 17 FX stands for Foreign Exchange 13

14 4. Payments made in RMB offers numerous opportunities for corporates (continued) There are three ways for offshore banks to pay or be paid in RMB. Correspondent bank model Clearing bank model CIPS model In the correspondent bank model, commercial banks willing to make a payment in RMB will use an offshore 18 correspondent who will then work with an onshore 19 correspondent (part of the same or different banking group). Either CIPS, the crossborder payment system of RMB payment or CNAPS2, the domestic RTGS of RMB payments will be used to reach the beneficiary bank. This is dependent on a number of factors such as whether the beneficiary bank is a CIPS-direct participant. The second model is known as the clearing bank model. In offshore locations, official RMB-clearing banks appointed by the People s Bank of China (PBoC) offer RMBclearing capabilities to commercial banks. The most important markets outside of Hong Kong are London and Singapore. Commercial banks will use these RMB-clearing banks to process payment transactions. Cross-border transactions will be sent to the mainland office of the RMB-clearing bank, which will then route the transactions via CNAPS2 or CIPS depending on whether the beneficiary bank is a CIPS-direct participant. For offshore-to-offshore payments, clearing can be done directly with the support of a clearing bank. Most banks require a CIPS onshore participant, such as a bank in mainland China, to make a payment in RMB. In the third model, the CIPS model leverages CIPS capabilities which make offshore participation possible. Three different models for offshore banks to pay or be paid in RMB 1 Correspondent bank model 2 Clearing bank model 3 CIPS Model Offshore banks who want to pay RMB Offshore Offshore Correspondent RMB offshore centre / RMB clearing bank appointed by PBoC (e.g CCB london, ICBC Singapore, BOC Sydney) Bank of China (Hong Kong) Offshore Bank CIPS Offshore participant Onshore Mainland Correspondent Mainland branch of RMB clearing bank CIPS Onshore Participant SWIFT Others CIPS* CIPS (*) : optional Settlement in CNAPS2 (i.e. domestic RTGS) 18 Offshore stands for outside of mainland China 19 Onshore stands for in mainland China 14

15 RMB Tracker SIBOS special edition Global RMB usage Corporate RMB usage has increased significantly over the past two years, according to research firm East & Partners Asia, based on an international survey of 2,500 corporate treasurers and CFOs. The top six economies using the RMB for cross-border trade, East & Partners analyst Sangiita Yoong noted, are Taiwan, Hong Kong, Singapore, Australia, South Korea and the United Kingdom. She said the proportion of businesses that use the RMB is higher than those that do not in Taiwan, Hong Kong, Singapore and Australia, and South Korea, and the United Kingdom are not far behind. RMB cross-border transactions are largely made for trade settlement and trade financing as well as foreign exchange and risk management, Yoong added, with the first usage coming in top in every country except for the United Kingdom. According to SWIFT data, RMB usage accounted for 1.89% of domestic and crossborder payments in September When looking at cross-border payments only and excluding intra Eurozone payments, the share for RMB is even lower (1.13%). RMB s share as a domestic and international payments currency Customer initiated and institutional payments.messages exchanged on SWIFT. Based on value. September 2016 September USD EUR GBP JPY CNY CAD AUD CHF HKD THB SEK SGD NOK PLN ZAR DKK MYR NZD MXN TRY 41.08% 31.24% 7.77% 3.53% 2.03% 1.90% 1.57% 1.45% 1.15% 1.05% 1.04% 0.91% 0.73% 0.54% 0.46% 0.43% 0.40% 0.37% 0.32% 0.23% USD EUR GBP JPY CNY CAD AUD HKD CHF SGD THB SEK NOK PLN MYR ZAR NZD DKK MXN RUB 38.66% 34.65% 7.26% 3.53% 1.89% 1.80% 1.61% 1.51% 1.44% 1.03% 0.97% 0.83% 0.77% 0.55% 0.40% 0.39% 0.35% 0.32% 0.31% 0.19% Source: SWIFT BI Watch RMB s share as an international payments currency Customer initiated and institutional payments. Excluding payments within Eurozone Messages exchanged on SWIFT. Based on value. September 2016 September USD EUR JPY GBP CAD CHF AUD CNY HKD SEK NOK DKK NZD MXN SGD TRY PLN ZAR RUB CZK 44.01% 32.87% 4.63% 4.08% 2.61% 2.46% 1.55% 1.48% 0.90% 0.73% 0.57% 0.48% 0.46% 0.46% 0.41% 0.40% 0.39% 0.27% 0.24% 0.20% USD EUR JPY GBP CAD CHF AUD CNY HKD SEK NOK SGD MXN NZD PLN DKK TRY RUB ZAR CZK 42.14% 36.60% 4.23% 4.11% 2.21% 1.92% 1.54% 1.13% 0.95% 0.67% 0.61% 0.46% 0.45% 0.41% 0.38% 0.34% 0.30% 0.25% 0.24% 0.23% Source: SWIFT BI Watch 15

16 SWIFT BI Watch RMB adoption across financial institutions continues to grow. In terms of RMB usage globally, according to SWIFT data, the number of financial institutions using the RMB for payments have been increasing steadily over the last two years. The wider usage of RMB for payments will benefit China, which will naturally prefer to use RMB for the cross-border payments with countries along the BRI. In August 2018, SWIFT data showed that more than 2,191 financial institutions made worldwide payments in RMB: 1,429 of these institutions made RMB international payments involving China or Hong Kong, representing a 14% increase compared to August These 1,429 institutions are profiled in the chart below; Over 765 banks use the Chinese currency for payments without a leg with China or Hong Kong. Number of financial institutions using RMB for payments with China and Hong Kong Live and delivered, MT 103s and 202, in RMB sent and received directly with China and Hong Kong Source: SWIFT BI Watch +14% 1, % 1, % % % Share of RMB users Aug 16 Aug 18 33% 46% Aug 16 Aug 18 Aug 16 Aug 18 Aug 16 Aug 18 Aug 16 Aug 18 43% 52% 43% 48% 38% 44% 40% 48% Africa - Middle East Asia Pacific Americas Europe World 16

17 5. Australia s economic linkages with China and the Asia Pacific RMB Tracker SIBOS special edition Conclusion The BRI is making waves in China and throughout the rest of the region. According to the Centre for Strategic & International Studies, China plans to finance more than US$1 trillion in ports, bridges and roads across the globe in the coming decade 20. The initiative has ambitions to link China to many of its major markets by land and by sea routes, establishing new pathways for the global economy. Meanwhile, the trade relationship between Australia and China is vibrant and continues to grow rapidly. From increases in traditional trade categories such as commodities and agricultural products to the evolution of new catalysts such as the BRI, growth looks set to continue. The rising usage of the RMB has made trade easier, as both Australian and Chinese firms can make payments in their currency of choice. Innovations from the many fintechs based in Sydney provide a greater range of options to support cross-border trade as well. Sibos in Sydney this year provides a superb opportunity for key players to learn more about these key developments and to build the relationships that can take trade to even greater heights

18 About SWIFT and RMB Internationalisation Since 2010, SWIFT has actively supported its customers and the financial industry regarding RMB internationalisation through various publications and reports. Through its Business Intelligence Solutions team, SWIFT publishes key adoption statistics in the RMB Tracker, insights on the implications of RMB internationalisation, perspectives on RMB clearing and offshore clearing guidelines, as well as engaging with offshore clearing centres and the Chinese financial community to support the further internationalisation of the RMB. SWIFT fully supports global RMB transactions through its global network and messaging services, as well as RMBfocused value added services. SWIFT also has strategic collaboration with CIPS, facilitating more efficient RMB cross border payment transactions. Please visit for more information about RMB Internationalisation or join our new Business Intelligence Transaction Banking LinkedIn group. Support your RMB strategy with fact-based insights The growing importance of the RMB currency and its role in financial markets is evident. Because of this, financial institutions and corporates have already started to build their RMB strategy or are planning to do so in the near future but need more fact-based information to identify where their organisation stands. To support banks strategic development, SWIFT Business Intelligence provides insights into the use of all currencies, including the RMB. In order to obtain more granular market information on the internationalisation of the RMB as well as a competitive framework, SWIFT has developed three solutions: The Watch platform, a portfolio of online reporting and analytical tools that allows banks to access unique analysis and insights into their correspondent banking business through volume, value and currency analysis, as well as compare their performance against the market. RMB Market Insights analysis report provides fact-based quarterly market analysis using unique data only available from SWIFT Business Intelligence Similarly, the customised RMB analysis leverages SWIFT s unique data and provides crucial peer competition and strategic insights to optimise your business and support your decisionmaking. For further information about SWIFT s Business Intelligence RMB Consulting Services and the full Business Intelligence portfolio, please visit swift.com or Watch@swift.com FX Performance Insights The FX market is one of the largest in the world but as a decentralised market it is very difficult to compile accurate amalgamated metrics. There isn t one exchange where every trade is recorded. At Sibos 2016, SWIFT announced a new FX service that allows its customers to continuously measure their FX business performance and make more informed strategic decisions, based on metrics derived from actual transactions rather than survey-based information SWIFT FX Performance Insights enables you to continuously measure your FX business performance against those of your peers, and so make more informed strategic decisions, based on metrics derived from actual transactions rather than survey-based information. This benchmarking service can be customised based on your selected parameters, such as product group (cash, options), currency, customer segment (Investment managers, Corporates, Custodian Insourcers ) and region. The service deliverables are a set of monthly reports provided in a PDFbased layout. Individual details on each of the peers, anonymised except for that of the subscriber, are shown in order of ranking for that month. For further information about SWIFT FX Performance Insights, please visit swift.com or Watch@swift.com 18

19 RMB payments guide for corporates RMB Tracker SIBOS special edition

20 Contents Introduction Using RMB for trade settlement Advantages of paying in RMB Advantages of being paid in RMB Considerations of adopting RMB for trade settlement A corporate treasurer s perspective RMB features RMB & yuan CNH /CNY Regulations Information required with payment instructions Additional useful information to be provided 26 Appendix Purpose of payment - List RMB Internationalisation - Milestones Glossary Disclaimer This publication is intended solely for the purpose of highlighting features of the Renminbi (RMB) for information, and should not be regarded as a comprehensive research report, nor be used to provide financial, legal or regulatory advice. Nothing in this publication is intended or can be construed as constituting a commercial offering from any banks participating in this guide. Should you have any questions or issues relating to this publication, please contact your bank s RMB competence centre, or your local SWIFT representative. SWIFT or any bank participating in this guide accepts no liability for any direct or consequential losses arising from any action taken in connection with or reliance on the information contained in this document even where advised of the possibility of such losses. 20

21 Introduction RMB Tracker SIBOS special edition The RMB might appear more complex than other currencies. However, it has matured significantly, providing interesting opportunities for corporates. The purpose of this RMB Payments Guide for Corporates is to explain the main features of the RMB as a payment currency and demystify the complexities surrounding it. This document is intended for corporates outside of China that have not used the RMB as a payment currency to transact with suppliers and other commercial partners. This guide is a co-initiative led by SWIFT and banks (listed below) willing to better assist their corporate customers transacting in RMB. In terms of scope, please note that this document covers payments for goods and services only, and excludes payments like dividends, FDI, capital injection, etc. 21

22 1. Using RMB for trade settlement The growing importance of China in the global economic landscape and its role in the Belt and Road Initiative (BRI) have given rise to the number of opportunities around the RMB, and reinforced its role as the preferred currency for Chinese companies. The strong support from banks for China s Cross-border Interbank Payment System (CIPS) and SWIFT gpi have also led to a general increase in efficiencies around transacting payments in RMB. More than 70 Chinese Banks have joined SWIFT gpi, representing more than 90% of SWIFT RMB cross-border payments with mainland China. Today, RMB payments are processed faster, with full transparency of fees and end-to-end traceability. In July 2018, SWIFT, along with a number of corporates and banks, started to test an enhanced multi-bank standard to further improve the cross-border payments experience for multi-banked corporates. This enhanced standard streamlines the process for corporate treasurers by allowing them to initiate and track gpi payments to and from multiple banks in a single format and integrate gpi flows in ERP and Treasury Management Systems 1. Your Bank will be able to provide you with advisory and adequate support on the benefits of using the RMB for trade transactions and funding needs. 1.1 Advantages of paying in RMB As a corporate trading with China, the advantages of paying in RMB are manifold: Reduce costs: As there is no currency translation for your Chinese partners, the RMB is seen as a natural currency hedge to cover your import-export flows. Facilitate commercial discussion: From a negotiation perspective, the RMB improves price transparency and facilitates the commercial discussion with your Chinese partners with possible supplier discounts. 1 Press release - Brussels, 25 July Corporates pilot to start testing new multi-bank payments tracking on SWIFT gpi Provide you access to a larger supplier base in China: Some suppliers only accept payments in RMB. Simplify internal processes; Trading in RMB offers a simpler trade documentation process (versus foreign currency). 1.2 Advantages of being paid in RMB Optimising FX risk management: Mainland China-based companies that use the RMB to sell goods will see savings made as no conversion costs are incurred. These savings could be substantial when dealing with currencies with no direct quoted exchange rate with the RMB. Furthermore, there are additional savings to be made on FX hedging fees as receivables denominated in RMB provide a natural hedge with payables in RMB. More convenience: Chinese buyers who opt to use the RMB, their home currency, to transact with offshore companies will find that this simplifies the process to provide supporting documents to their banks for the payment. Better customer relationships: With the wider choice of invoicing currencies, Chinese buyers enjoy greater flexibility and have higher satisfaction. Increased customerbase: Furthermore, it will broaden customer base and business opportunities as the overseas company can access a larger pool of buyers onshore. Faster collection cycles: The simpler trade documentation process involved when using the RMB allows a corporate to expedite their collection cycles, compared with using foreign currencies (FCY). Increased flexibility: Offshore-based corporates (with the exception of countries with local regulatory restrictions on foreign currency control) will find it possible to redeploy the RMB received with higher flexibility: holding deposit earning interest or investing in RMB products (e.g. onshore/offshore capital markets) for yield enhancement or for RMB payables. Hedging RMB exposure is also made easier by leveraging the depth and breadth of CNY and CNH FX markets for optimal rates. 1.3 Considerations of adopting RMB for trade settlement The entire trade cycle including pricing liaison and documentations, as well as the processing procedures and IT systems involved to support the trade transactions, have to be reviewed and aligned prior to redenominating trade into RMB: IT Systems (TMS/ ERP) need to be enabled to support RMB as a payment currency and distinguish the onshore and offshore FX rate curves (CNY / CNH) for recording/ processing FX transactions. A review of the pricing with your trade counterparties will be necessary to set the price quotation in RMB. Trade documents have to be revised to include RMB as a trading currency e.g. payment terms, settlement accounts, intercompany agreements, invoice adjustments etc. 22

23 RMB Tracker SIBOS special edition 1.4 A corporate treasurer s perspective David Blair Managing Director, Acarate Consulting, Singapore 25 years of management and treasury experience in global companies David Blair was formerly the vice-president of treasury at Huawei where he led a treasury transformation for this fast-growing Chinese infocomm equipment supplier. Before that David was group treasurer at Nokia, where he built one of the most respected treasury organisations in the world. He has previous experience with ABB, PriceWaterhouse, and Cargill. David has extensive experience managing global and diverse treasury teams, as well as playing a leading role in e-commerce standard development and in professional associations. 1. What was the trigger for your company to use RMB as payment currency? There were three main triggers. First, onshore forward market is restricted by very specific regulations, so we were looking to get our FX risks offshore for hedging by the global treasury of the company. Second, this helped us to reduce our offshore FX risks considerably. Lastly, many of our customers and suppliers in mainland China preferred to use the RMB. In fact, some suppliers may charge more to compensate for the FX risks invoiced when being paid in other currencies. 2. What was the main impact internally (procedures/ TMS etc)? The initial problems were due to the different yield curves for onshore and offshore (i.e. CNH pricing is a little bit different than CNY). As CNH doesn t exist legally, only CNY can be input. This also impacts external audits, making it more complicated. 3. What is the main benefit for your company to pay or be paid in RMB? If you are a Chinese company, this could mean no or reduced FX risks. If you are a foreign company, transacting in RMB helps you to better manage your offshore FX risks. 23