How would an appreciation of the RMB affect the export business?
What has been bullish in 2021? It is the RMB exchange rate. On the first trading day of this year (Jan 4), the spot exchange rate of RMB against the US dollar opened at 6.5195 and rose to 6.4691 on the 15th. Multiple favorable resonances account for the recent continuous appreciation of the RMB. “Chinese well-controlled epidemic and the recovering economy push the Yuan to appreciate all the way.”
What will be the impact of the continued appreciation of the RMB on the export business?
“The appreciation of the RMB will have an impact on foreign exchange settlement of foreign trade enterprises. But the impact on B2B foreign trade companies will still be small as long as the exchange rate does not float more than 15 percent.” XTransfer founder said. To deal with the RMB exchange rate fluctuations, most foreign trade enterprises tend to reserve certain exchange rate fluctuations when quoting. When the RMB exchange rate changes, the quotation of the enterprise’s products will be adjusted accordingly. So long as the price is kept within a certain floating range, the buyers and sellers can accept it.
For B2B foreign trade companies, they possess their own supply chains, and most of them have strong stickiness which will not easily be affected by small-scale exchange rate fluctuations. When faced with exchange rate fluctuations, some methods can be taken to minimize and control the losses. And the lock exchange is one of the methods.
The lock exchange is also known as forward foreign exchange settlement and sale. In the case of frequent exchange rate fluctuations, the bank can handle the operation of locking the exchange rate for the enterprise. Foreign trade enterprises can sign a forward exchange settlement agreement with the bank. The bank determines the exchange rate of foreign exchange received at a certain time in the future based on the recent exchange rate trend and settles foreign exchange at this exchange rate for long-term stability. The lock exchange is usually used when the contract period is long, the order amount is large, and the exchange rate is very unstable. The advantage of the lock exchange is that there will be no losses due to exchange rate fluctuations when the contract is executed.
In addition to the lock exchange, setting the validity period of the quotation is also an effective way to avoid exchange rate risks. The exchange rate changes in real-time and fixed quotations pose exchange risks for foreign trade companies. In order to avoid losses caused by exchange rate changes, the quotation has better to settle a “validity period.”
The quotation changes according to the exchange rate, so if there were a “validity period”, everything could be easier. Most of the time, the quotation can remain unchanged while the exchange rate changes little. If the exchange rate changes greatly, the “validity period” are able to help companies avoid greater losses.”
In addition, the use of RMB for settlement is also a good remedy for foreign trade companies to deal with exchange rate fluctuations. At present, some foreign trade companies have begun to try to use the RMB settlement to avoid the risks caused by the fluctuation of the US dollar exchange rate. For buyers from Southeast Asian countries such as Malaysia, Singapore, and Thailand, Chinese foreign trade companies have actually started to use RMB for settlement very early. In addition, in Hong Kong, China, and Africa, many foreign trade companies also use RMB for settlement. Currently, the number of countries and regions where settlement can be made in RMB has reached 28. “In Europe, although buyers and sellers have not yet reached a complete consensus, the voice of Chinese foreign trade companies to use renminbi for settlement is also increasing. In recent years, the acceptance and scope of the renminbi have been increasing.”