In our blog post “Pay suppliers in RMB and save big” we explained how Chinese suppliers commonly build a “buffer” into dollar-denominated contracts to guard against exchange rate risk.
This buffer is around 8% in some cases. That’s a lot of money.
100% up front…is crazy
It’s up to the buyer to negotiate safe terms of payment. Using RMB could save a lot of money.
Paying in RMB is one way to avoid this 8% mark up. But only certain banks in a handful of cities allow you to set up an RMB account in your home country.
For example, in all of North America, only banks in Toronto (at the time of writing) offer their clients this RMB banking service.
China Daily explains:
Ontario is launching the Americas’ first trading hub for the Chinese currency renminbi (RMB), which will enable businesses across Canada to convert Canadian dollars directly into Chinese currency.
The hub will lower overall business costs for Canadian businesses by removing the need for an intermediate conversion to US dollars, while supporting increased trade between Canada and China, it said.
HSBC Holdings Plc estimates that about one-third of China’s trade will be settled in yuan by 2015.
Where can I do my banking in RMB?
At the time of writing, only London, Frankfurt, Luxembourg, Hong Kong, Singapore, Taiwan and Sydney allow RMB trading hubs. So if you bank in these cities and do business with China, you should set up an appointment with your banker before your competition beats you to the punch!
Content related to RMB transactions and paying suppliers in China:
RMB’s exchange rate more flexible. Your risk just doubled. What to do?
RMB: The Best Currency for China Trade
Pay suppliers in RMB and save big
Guide to negotiations, contracts and payments.
Wishing you successful China sourcing!
Author of “The Essential Reference Guide to China Sourcing & China Sourcing Academy. Founder of the PassageMaker group of companies.
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