Recently, an article from HSBC Global Connections called “What Canadian Business Need to Know about RMB” grabbed my attention. RMB is the currency that is used in China, but why should Canadian businesses need to know about Chinese currency.
As being introduced in the article, Chinese businesses would like to offer up to 5 percent discount if their partners trade in RMB, but only 5 percent of Canadian that is surveyed uses RMB for trade settlement. Due to the uncertain fluctuation risk of currency, Chinese companies would like to set higher price to offset the currency fluctuation if their partners decide to pay with foreign currency.
In my opinion, keep trading in CAD will not be a beneficial decision to Canadian companies. According to the exchange rate chart from 2004 to 2014, the exchange rate between CAD and RMB decreases 22.7 percent as the purchasing power of RMB is increasing. Due to the gradually increasing in the purchasing power of RMB, Canadian businesses would pay much more if they continuously trade in CAD; since the purchasing power of CAD is relatively decreasing by comparing to the purchasing power of RMB, the Canadian companies will pay more for the same amount of purchase by comparing to the past, and in order to offset the fluctuation of the exchange rate, Chinese will keep rising the price; therefore the cost of trading in CAD increases. This will cause Canadian companies to pay more for less. I agree with the idea that Canadian companies should be at least RMB ready. The 5 percent discount of using RMB will save vast amount of money during the trade. The money saved could be used either for further purchasing or investment to generate more profit. Furthermore, the discount for trading in RMB will also increase the exports of Chinese companies due to the increase in demand. Therefore, I suggest trading in RMB would be a double-win situation to both Chinese and Canadian companies.
Reference:
“XE Currency Charts (CAD/CNY).” XE.com. N.p., n.d. Web. 06 Nov. 2014.
“What Canadian Businesses Need to Know about RMB.” HSBC Global Connections. N.p., 13 Oct. 2014. Web. 06 Nov. 2014.
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