However, since the launch of the renminbi cross-border trade settlement scheme in 2009, some companies have begun to realize that despite the convenience factor, paying Chinese suppliers in U.S. dollars comes with some fairly sizable disadvantages. First and foremost is the fact that suppliers are charging their overseas customers a premium for paying in U.S. dollars. “Depending on the customer, some are paying 2%, some 3%,” Polyakov says. “In contrast, when you look at the historical volatility of renminbi over the U.S. dollar, it’s below 0.5%—so paying a margin of 2% to 3% seems very excessive.” Other estimates suggest the premium could be as high as 5% to 8%.
In addition, when two parties transact in a currency that is not a base currency for either of them, it introduces a certain level of risk into the transaction. “If you’ve got a company in the U.K. buying from China in U.S. dollars, that means that both of them carry an exchange-rate risk,” says Edward Till, head of trade product for Europe at HSBC. “If you use one of the base currencies of the two entities, at least one party doesn’t have to do any hedging, so you’re taking some of the risk out of the system.”