The internationalization of Chinese renminbi (RMB), or the yuan, which seemed to have slowed down in the past year, may regain its shine in the region as China continues to enhance its financial infrastructure, according to the CEO of HSBC Malaysia.
According to recent SWIFT data, the yuan, which fell by nearly 30 percent in terms of international payments last year, bounced back to its position as the sixth most active currency for global payments with the overall Chinese yuan payments value increasing by 14.62 percent compared to April 2017.
China ploughed ahead with RMB internationalization, widening the range of domestic assets that foreign investors can buy and sell, which may spur the usage of the currency, HSBC Malaysia's Chief Executive Officer Mukhtar Hussain said in a statement on Friday.
Mukhtar noted the Shenzhen-Hong Kong Stock Connect, which was launched last year to allow international investors to trade shares of smaller, more entrepreneurial companies, and the establishment of the Bond Connect, a trading link that will connect China's bond market with the world.
Mukhtar also opined that the Belt and Road Initiative may increase the use of the RMB for financing in countries like Malaysia, as Chinese companies with RMB-denominated balance sheets are likely to increase the local pools of RMB liquidity.
Spurred on by the government, Chinese companies are actively participating in B&R projects. Projects that are under the Belt and Road Initiative in Malaysia including Melaka Gateway project, and the Malaysia-China Kuantan Industrial Park.
Given China's significance as Malaysia's largest trading partner, and Malaysia as a partner in the Belt and Road Initiative, Mukhtar said the settlement of trade and investment in RMB will significantly lower costs and promote greater cross-border trade and investment activity thus increasing the usage of RMB.
Small and medium enterprises can also minimize exposure to exchange rate fluctuations of U.S. dollars and reduce the cost of doing business in China by capitalizing on the RMB clearing house, he said.
Mukhtar attributed the decline in the using and holding of RMB last year to concerns over China's economic slowdown, the yuan's depreciation, and the tightening of cross-border capital flow regulations.