The renewed economic ties between the Philippines and China should prompt Filipino businessmen into using the renminbi directly in their transactions with Chinese counterparts.
In a statement, the Bank of China (BOC) said the Bangko Sentral ng Pilipinas (BSP) has recently given banks the mandate to develop a peso-renminbi spot market.
Renminbi, the official name of Chinese yuan, is now among the recognized global currencies.
BOC, in the statement, said the terms renminbi and yuan are being used interchangeably but this should not be the case since “strictly speaking, yuan refers to the basic unit of RMB (renminbi).”
“This means that the currency is denominated in one yuan, two yuan, and so on. Thus, commodities cost “10 yuan” or “100 yuan,” but not “10 renminbi” or “100 renminbi,” it said.
This situation is similar to the United Kingdom’s pound sterling, “which is denominated in pounds, not sterling.”
Renminbi, which has an international abbreviation of RMB and a symbol ¥, similar to the Japanese yen, is literally translated to “the people’s currency” in Mandarin, it explained.
Citing data from the Philippine Statistics Authority (PSA), BOC said total exports of the Philippines to China in May 2018 amounted to USD761.4 million and accounted for 13.2 percent of total exports or the fourth highest.
Imports from China during the same month amounted to USD1.92 billion, 20.3 percent of the total.
Aside from trade, direct conversion of renminbi to peso instead of converting it first to US dollar, will also benefit the tourism sector since tourists from mainland China are the second highest visitors to the Philippines in recent years.
Citing Department of Tourism (DOT) data, the bank said 481,281 Chinese tourists arrived in the Philippines in the first four months this year, 52.65 percent higher against the same period in 2017.
In 2017, Chinese arrivals to the Philippines reached 968,000, it said.
With these factors, BOC said there is an advantage to be able to directly convert renminbi to peso and vice-versa instead of using a third currency since the latter doubles the foreign exchange costs.
Bank of China-Ltd Manila Branch Country Head Deng Jun told the Philippine News Agency (PNA) that it will take time for Filipino businessmen “to change its (their) habit in accepting RMB as payment and settlement currency when they do transactions with Chinese counterparties.”
He discounted the idea that the renminbi will surpass the US dollar as currency of transaction between businessmen from the two countries in the near term.
“However, to save on friction costs and hedge FX (foreign exchange) exposure risks, we would like to encourage enterprises of China and the Philippines to choose RMB rather than a third currency as payment and investment currency for transactions between them,” he said.
“We believe that the multi-currencies/peso pairs trading market will come soon in the Philippines for the benefit of the local business community,” he said.
Asked for projections on the volume of peso-renminbi transactions this year, Deng, citing results of their study, said they expect this to be more than USD10 billion.
To date, BOC Manila is a specialty bank offering foreign exchange services for local businesses that plan to do business with Chinese counterparts.
It has partnered with 14 local banks for this service and these Philippines-based banks are Asia United Bank (AUB), BDO Unibank Inc (BDO), Bank of the Philippine Islands (BPI), China Banking Corp. (Chinabank), East West Banking Corp. (EastWest Bank), Metropolitan Bank & Trust Co. (Metrobank), Philippine Bank of Communications (PBCOM), Philippine National Bank (PNB), Philippine Business Bank (PBB), Rizal Commercial Banking Corp. (RCBC), Sterling Bank of Asia (Sterling Bank), Security Bank Corp. (Security Bank), UnionBank of the Philippines (Union Bank), and Bank of Commerce.
Asked for an assessment on Filipino merchants’ acceptance and usage of renminbi, Deng said they have existing clients importing machinery equipment from China that are using the Chinese currency.
“Likewise, we have a number of clients who are open to using RMB, so long as they will save on cost. Some clients also want to maintain proper RMB position in their balance sheet in order to manage the FX risk,” he added.
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