Martin Maurer, CEO, Association of Foreign Banks in Switzerland, discusses the potential benefits arising from China and Switzerland’s free trade collaboration.
December 17, 2013 | Martin MaurerIn his opening remarks at The Asian Banker’s RenminbiWorld Conference in Beijing, Wei Jianguo, China’s former vice minister of commerce, said, “The opening of the Chinese economy through free trade agreements and the path to the renminibi’s full convertibility ought to be linked.” We fully agree.
Western economies and investors are focusing on offshore renminbi – the possibility for non-China domiciled parties to raise funds from investors domiciled outside of China. To Western investors – private persons, treasurers of big firms, pension funds, collective investment schemes, and governments – the renminibi is seen mainly as a needed investment alternative to the US dollar and the Euro.
Wei was right in pointing to a more fundamental way to integrate the Chinese currency into the global financial system. A free trade agreement, such as the one Switzerland and China recently signed, provides a direct gateway towards deeper financial integration.
Why is this so? When two countries trade freely, they must be able to make direct payments. Firms involved in trade should be able to maintain some of their earnings in a financial institute domiciled in the trading partner’s country. They should be able to pay bills directly from this account, to lend and borrow, to get credit, to manage the cash they are holding.
Let’s assume a Chinese firm sells shoes to Switzerland – the example is hypothetical, but serves the purpose of illustrating the importance of the financial system for trade. The shoes are paid in Swiss Francs. Either the payment is made and the proceeds are exchanged immediately into renminbi or the Swiss Francs are paid out into an account held by a designated bank in Switzerland. The Chinese firm can use these Swiss Francs in different ways: it may use the currency to pay for Swiss services needed for its export activities; it may want to repatriate them in order to pay for some specific inputs needed in the C...
Categories:
Capital & Strategic Issues, China, Payments, Risk and Regulation, Rmb, Trade Finance, Transaction BankingKeywords:Wei Jianguo, Shanghai FTZ, Supply Chain Integration, Switzerland, Martin Maurer, Maria Clara Rueda
