Among U.S. companies that do business in China, theproportion settlingtransactions in renminbi (RMB) has nearly doubled in the pastyear. The United States still lags behind some European nations,but the trend is clearly toward increased use of the Chinesecurrency. These are the key findings of an HSBC study released last week.

The bank commissioned Nielsen to survey financialdecision-makers in 1,304 companies that are either foreignbusinesses engaged in trade with mainland China, or else companiesbased in China that do business abroad. More one in five use theRMB for settlement, and that figure rises to more than two in fiveamong organizations over US$500 million in annual revenue. Outsideof mainland China (33 percent), Taiwan (38 percent), and Hong Kong(58 percent), the countries in which the largest proportion ofrespondents said their company settles some cross-border deals inRMB were France (26 percent) and Germany (23 percent).

Among U.S.-based organizations that either have a physicalpresence in mainland China or engage in import/export activitiesthere, 17 percent currently do business in RMB. That's nearlydoubled over the past year; in 2013, only 9 percent of U.S.businesses dealt in RMB. And across all geographic regions, a thirdof companies that are not currently using the RMB plan to do so inthe future.

“We're seeing a lot more interest in the renminbi,” says MartinBrown, executive vice president and head of large corporate bankingwith HSBC. “People are understanding more about how the renminbitrades and the liquidity. They're getting more comfortable doingbusiness in the currency.” According to SWIFT, the RMB rose through the ranks of the mostcommonly used global currencies from 13th position in January 2013to seventh in May 2014—although it still represents only 1.47percent of all global cross-border trade and just 12 percent ofcross-border payments with China and Hong Kong.

Almost two-thirds (62 percent) of companies that arecurrently doing business in RMB say they're doing so because it'sconvenient. Nearly as many (58 percent) cited reducing foreignexchange (FX) risk or costs as a reason. The same proportion saidthey do business in RMB because of a request from a tradingpartner. “Some companies in China would like to accept renminbi,”Brown says. “There are other companies that would still prefer tobe paid in dollars. There's always foreign exchange risk; thequestion is who takes it. That becomes more of a negotiating pointas comfort levels rise and settlement in renminbi becomes more of anormal commercial decision.”

A large majority of the surveyed companies that are alreadydoing business in RMB say they're gaining financial advantages (76percent) and relationship advantages (77 percent) as a result ofthat choice. And more than half (55 percent) of U.S.-basedorganizations that are already settling transactions in RMB expecttheir overall trade with China to increase in the next 12 months.

“There's a competitive advantage to being flexible and beingable to denominate transactions in either dollars or renminbi,”Brown says. “More French and German companies are willing to dealin renminbi, and if you're competing with them for business, it's agood idea to provide that option. It can open up access todifferent suppliers and different buyers in China.”

Still, U.S.-based companies that are settling transactions inRMB today are fairly early adopters of the practice. “At themoment, we're seeing the more forward-looking treasury staffssaying, 'We see that China's undergoing a gradual liberalization,and we know there's good liquidity in the currency. We want to beready, to have the mechanics in place for when our firm needs tostart settling in renminbi,'” Brown says. “It's important to notethat the gradual liberalization of trading rules around business inChina is opening up opportunities for U.S. businesses. There's alot more flexibility around investments, dividends, and pooling of currencies, some of it prompted by the Shanghai Free Trade Zone. That's creating a vast amount ofinterest among treasury and finance staffs about what will bepossible in China 12 months from now.”

In fact, many companies in the survey that don't currentlysettle deals in RMB indicated they're looking to cash in on thefinancial and relationship advantages that they might gain byhaving the RMB option. Twenty percent expect to start trading inRMB within three years. These companies believe that starting touse RMB will enable them to win more business (66 percent), getlower prices on goods they're buying (55 percent), and reduce FXrisks (61 percent). Sixty-three percent said a trading partner hasasked to transition to RMB-denominated deals.

Some survey respondents expect the RMB to become a truly globalcurrency. Nearly a third of all respondents—although only 6 percentof respondents from the United States and 9 percent of those fromthe U.K.—said they think that within the next five years companieswill start using the RMB to settle transactions that have noconnection to China, just as the U.S. dollar is currently used formany transactions that don't involve a U.S.-based tradingpartner.

Brown thinks it's too soon to speculate on the future of the RMBas a lubricant of global trade, but he expects use of the currencyto continue to grow. “People have concerns about documentation andother restrictions on currency exchange in China,” he says. “Butthe biggest hurdle to RMB settlement at most companies is a lack offamiliarity, a lack of understanding.” Indeed, 13 percent of allsurvey respondents said their company has “little or nounderstanding of relevant issues or where to turn for information”about RMB internationalization. Another 31 percent said they havesome understanding but not enough to take any action. Banks areworking to resolve this information gap. Despite the challenges,Brown says, “I think liberalization will continue to drive morerenminbi usage.”