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PCBB Banc Investment Daily April 02, 2013
Banc Investment Daily
April 02, 2013


It is no surprise that the vast majority of money transferring outside the US is related to transactions going to China. We know from looking at the labels of almost everything we buy that most things in the world are made in China. Did you know that the vast majority of currency transactions that take place between China and other countries are settled in US dollars and not in renminbi? That is because until quite recently, the currency of China has been highly restricted and not allowed to be used outside of the country. As such, transactions between mainland Chinese companies and their foreign trading partners had to be denominated in dollars.
Restrictions are loosening now on the renminbi. In 2009, Beijing launched a program that allowed companies on the mainland to use renminbi for international trade. Among the first to use Chinese currency was IKEA, the world's largest furniture retailer, along with other large multinationals. Now about 10% of China's total trade is in renminbi. The advantages include better management of exchange risk, cutting transaction costs and processing payments faster.
As a community banker, you might be yawning right now and wondering what's in it for you. Given the sheer amount of trade flow back and forth, it is highly likely that some of your customers are importing and exporting to and from China. These don't have to be manufacturers, as even smaller retailers are buying things directly from China. Your community bank can make money by processing currency transactions for those customers and make even more if done so perhaps in renminbi (we can help you). Doing so not only helps your customers, but generates much needed fee income for your bank as it deepens and expands customer relationships.
Speaking with our team of international trading experts about these opportunities is worth your while. You will find that looser currency restrictions in China are not being fully leveraged and many customers are still paying in US dollars. The ability for businesses on both sides of the transaction to control the foreign exchange process helps reduce costs, increase fees for your bank, speed settlement and make cash flows more predictable. It provides an advantage for your customers, fees for you and is something we offer to hundreds and hundreds of client banks. Offering settlement in the Chinese currency could also give a competitive edge to your importing and exporting customers and help differentiate your bank from competitors.
We can help make the process easy despite impending regulatory changes under Dodd Frank for banks who offer international wire transfers, so don't worry about that either. At this moment, implementation of new regulations on international consumer transfers has been postponed and the final outcome is unknown, but we have your back so we will keep you informed and up to date. At PCBB, keeping our community bank customers up to date on regulatory issues is a priority and one we readily share with our customers. Call to explore the opportunities in the international world that can add fees for your bank as you deepen relationships with your small business customers buying and selling things from all over the world.