Singapore commodities hub drives RMB trade settlement

Commodities are the reason why the Chinese Renminbi (RMB) scheme is going global and the connection is Singapore, according to the Standard Chartered Bank (SCB).

“I believe that the Singapore companies that export and/or import to China will be the natural clients demanding RMB/ CNH services. The other group will be institutional investors that are seeking to diversify their portfolio and at the same time seeking to gain exposure to the CNH market,” Ray Ferguson, SCB Regional Chief Executive for Singapore and Southeast Asia told Singapore Business Review.

Singapore, is a major commodities hub in Asia - soya beans, cotton, copper, steel, crude oil are traded here, a reason why various commodity houses are based in Singapore, and more are being set up, he noted.

Furthermore, Mr. Ferguson said that Singapore is also the region's main treasury centre for multinationals - part of this is due to the number of double-taxation treaties - 64 at last count. As such for regional treasurers based here, the RMB is one of the several currencies they would have to deal with.

According to the bank’s official, whether companies in Singapore are sourcing from or looking to sell to the China market, they will stand to gain from the following:

• Increased control and transparent pricing
• Reduced FX-related costs and risks
• Shorter settlement cycle
• Competitive advantage through widened base of suppliers or buyers: As access to foreign currency can be limited, RMB settlement can be used to access a wider supplier or buyer base in China
• Better Procurement Cost and improved Working Capital: Pricing goods in RMB removes the mark up for foreign exchange costs and risks. Payments received by suppliers through the RMB trade settlement scheme receive faster tax rebates from the authorities, thereby reducing costs in the supply chain. This also creates an opportunity to negotiate better credit terms due to the shortened payment period for suppliers
• RMB is in a position of relative strength to other global currencies and is expected to appreciate
• High Yield currency and better investment opportunities
• Corporates dealing in two-way trade with China will now have an opportunity for natural hedging of their china cash flows

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