1. 07 Mar 2013
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FXregulationsstupefyLatamcorpRMBadoption
LatinAmericancorporatesarekeentoincludetherenminbiintotheirbasketof
currencies,butseveralregulatoryhurdlesdomesticallycontinuetohinderthis
development,sayexperts.
Regulatory and capital controls that exist in Latin America (Latam) are impacting the
adoption of the renminbi – another partially­controlled currency – by corporates in the region.
Gala Embalagens, Brazil’s leading toy retailer, embarked on the country’s first renminbi­
denominated import transaction last month after company owner Fabricio Pereira de Souza
visited China for talks with his manufacturing partner, Delta Superior, according to HSBC in a
press release on February 28.
Under the terms of the transaction, Gala Embalagens imported Rmb732,000 (US$117,759)
worth of toys from China paying for them in the Chinese currency rather than converting its
payment to US dollars as the company was able to reap several benefits from this
transaction.
“The benefit to the overseas buyer is that you would be able to take away the foreign
exchange margin component, thereby increasing the opportunity for the buyer to get a
discount as the buyer is dealing in the supplier’s currency,” said Bruce Alter, head of trade
for China to Asiamoney PLUS in a telephone interview on March 6.
As a result, another larger transaction is being planned in the near future between both
parties, adds HSBC.
As global growth shifts from developed to emerging markets, Brazilian companies are set to
benefit from a rapid rise in South­South trade flows between Latam, Africa and Asia Pacific,
especially as the Chinese government continues deregulate its currency and as companies
become more familiar with the currency, highlight market participants.
Bilateral trade increased about 30% annually since 2001 to reach US$241.5 billion in 2011,
while Chinese investment in Latin America totaled US$10.1 billion in 2011, 16.8% of China's
outbound investment last year, according to the State Administration of Foreign Exchange
(Safe).
“The significant Sino­Latin American trading activity is the primary driver in renminbi
adoption,” said Brenda Torres, Miami­based Latin America trade services product manager
for Citi to Asiamoney PLUS in an email reply to questions on March 6. “We have spoken with

2. several corporate clients across Latin America, who are interested in adopting the renminbi
in their trading activity with Chinese counterparties by using the renminbi denominated letter
of credit.”
The letter of credit (LC) is the most utilised trade settlement instrument in Sino­Latam trade,
note transaction bankers. The instrument allows companies in Latam to issue, receive and
settle renminbi denominated LCs with their Chinese trading partners, while mitigating risk
associated with international trade.
Latam take­up slow
Despite the positive outlook on the adoption of the renminbi by global corporates, the take­
up by Latam companies will still continue to lag behind other regions.
In January, Asia accounted for Rmb235 billion of renminbi­denominated trade payment
volumes, Europe and North America accounted for Rmb83 billion and Rmb7 billion
respectively while Latam only recorded Rmb1 billion, according to data from Swift.
A flurry of recent currency interventions along with existing regulatory controls placed on
certain currencies in the Latam region are the main reasons why the adoption of another
non­convertible currency like the renminbi by corporates would be a little difficult, say
experts.
For example, the Brazilian finance minister Guido Mantega said earlier this year that his
country was preparing additional measures to prevent a further climb in the value of the
Brazilian real in addition to the already­existing capital controls introduced during 2010­2011.
Argentina, on the other hand, has a managed local currency whose exchange rate is set by
the central bank.
“We are beginning to see initial take­up but it is still very early days for Latam,” said Michael
Vrontamitis, head of product management east for transaction banking at Standard
Chartered to Asiamoney PLUS. “One reason is that the local currencies are very regulated.
It’s not as easy to manage as a fully convertible currency like the Hong Kong or Singapore
dollar dealing out of Hong Kong, Singapore, London or New York.”
“It’s much easier to use US dollars in these locations. I think it’s taking a while for people to
figure out how to use the renminbi, given the number of restrictions existing in the market
place,” he added.
Additionally, unlike Hong Kong or Singapore that has closer proximity with the Mainland,
Latam on the other hand has a closer relationship with North America, with the region
continuing to be heavily influenced by the US economy and currency.
“At present, it is still difficult for the renminbi to grab a market share from US dollar in this
region since the internationalisation of [the currency] is still in its fledgling stage,” said Hong
Kong­based Alicia García­Herrero, chief economist for emerging markets at BBVA
Research. “Second, a large portion of bilateral trade between China and Latin American
countries is commodities, which, by international standards, are denominated in US dollar.
This, to some degree, has inhibited the use of renminbi in the trade payment.”
While setting up a renminbi clearing back in the US time zone would certainly encourage
more trade flows denominated in the Chinese currency in the region, other complementary
measures should also be adopted to increase businesses acceptance of the currency.

3. 07 Mar 2013
“China’s government can facilitate this process. In addition to expanding the investment use
of renminbi by further liberalising the capital account, China authorities can set up specific
programmes to encourage the renminbi financing in Latin America countries, such as
renminbi trade finance and direct investment programmes,” added García­Herrero.
Additionally, any support from the governments in Latam in terms of making it easier to lend
and invest the Chinese currency would definitely benefit renminbi­denominated trade flows,
add analysts.
China fully opened the renminbi for cross­border trade settlement in June 2012. HSBC
Global Research estimates that approximately US$2 trillion, or half of China’s trade with
emerging markets will be settled in renminbi in the next three to five years, making the
currency one of the world’s top three currencies at that time.