Out-Law News 1 min. read
21 Nov 2014, 11:05 am
ECB executive board member Benoit Coeure said he is “convinced that the continuous development of more efficient payment and clearing arrangements will benefit corporates and financial actors, both in the euro area and in China”.
Coeure said several challenges remained, including the need to have “common or interoperable technical standards, a lack of which hamper a fully automated and fast processing of transactions, leading to higher failure rates and costs”.
Coeure said the ECB appreciated China’s moves to “introduce state-of-the-art standards” such as ISO20022 in addition to those by the Society for Worldwide Interbank Financial Telecommunication (Swift) “to increase fully-automated processing, for example by developing a standardised dictionary for the Chinese Commercial Code”.
However, “we should not forget that, together with many opportunities, the integration of a new major currency in the global economy also brings risks, as it allows shocks to propagate more easily across borders”, Coeure said. “To minimise risks, such a process therefore must be monitored carefully and complemented by close cooperation between authorities in China and abroad.”
Coeure said: “Even more important however, is to strengthen the Chinese financial sector, in particular banks, so that it is sufficiently resilient to cope with the new pressures that financial liberalisation inevitably brings. I fully trust Chinese authorities to continue upgrading financial sector supervision and cooperate closely in order to safeguard overall financial stability.”
Couere said: “Five years ago, the use of renminbi in trade settlement was marginal, but according to Swift statistics, it is now already the seventh most popular payment currency, accounting for 1.72% of global payments in September 2014. This might not sound like a lot, but the growth rates are impressive and it is worth noting that even the fourth most popular currency, the Japanese yen, only accounts for 2.74% of global payments.
According to Coeure, the renminbi as an invoicing currency for international trade “has also been growing sharply”. He said about 25% of Chinese trade is currently invoiced in renminbi, an increase from less than 2% in 2011.
“Looking forward, the renminbi clearly has the potential to become a major international currency and to be included, when the International Monetary Fund will deem it appropriate, in the basket of currencies that determines the value of the Special Drawing Rights,” Coeure said.
A survey published by Swift earlier this year indicated that the renminbi is now the second most used currency for cross-border payments with China and Hong Kong, and its use is expected to spread to other major international financial centres.