Cross-border transactions can be understood in both a broad and narrow sense.
Cross-border transactions in a narrow sense refer to the exchange of goods and services between countries. For the trading parties, it is foreign trade. Cross-border transactions in a broad sense further cover the entire process of corresponding cross-border import and export arrangements, cross-border trade models, cross-border settlements, etc. related to the above-mentioned cross-border trade behaviors.
First, cross-border trade settlement in RMB will help enterprises effectively avoid exchange rate risks. Trade between foreign companies in countries and regions such as the United States, Europe, and Japan and domestic companies in China is usually priced and settled in US dollars, euros, and yen. The exchange rate risks between the US dollar, euro, yen, and RMB brought about by this are usually mainly borne by domestic companies. If international settlement can be made in RMB, domestic companies can avoid such exchange rate risks. China’s trade with other countries, mainly trade with Southeast Asia and South Korea, is usually priced and settled in the currencies of third countries, so that domestic companies and companies in these countries also bear exchange rate risks. When RMB is used for cross-border trade settlement, the foreign exchange rate risks borne by companies in China and neighboring regions that use RMB for international settlement can be partially eliminated.
Secondly, it helps to clarify the operating results of enterprises. When Chinese enterprises use RMB for cross-border trade settlement, their operating results are usually more transparent, which means that the costs of import enterprises and the profits of export enterprises can be more clearly fixed, which is conducive to the financial accounting of enterprises.
Thirdly, it saves the relevant expenses of enterprises in foreign currency derivative transactions. When enterprises settle in non-local currencies in trade, they usually entrust banks to conduct derivative transactions to avoid exchange rate risks. From the charging standards of forward foreign exchange settlement and sale of Chinese commercial banks, the purchase of three-month US dollars is charged at 2.5% of the transaction amount, and the sale of three-month US dollars is charged at 5% of the transaction amount. The charging standards of foreign banks for this transaction are generally higher than those of Chinese banks. According to the survey, entrusting banks to conduct derivative transactions accounts for about 2% to 3% of the operating income of enterprises. Since the reform and opening up, since Chinese enterprises mainly use international currencies such as US dollars, euros and yen for international settlements, they have borne a large amount of foreign currency derivative transaction fees to control exchange rate risks, which has increased the transaction costs of enterprises and weakened the international competitiveness of Chinese enterprises. If RMB is used for international settlement, the derivative transaction fees borne by Chinese enterprises to avoid exchange rate risks can be eliminated.
Fourth, it saves part of the exchange costs caused by two foreign exchange transactions. Most of the trade between China’s neighboring countries and regions and China is settled in US dollars, and the US dollar cannot be circulated in their countries. Therefore, settlement usually requires two exchanges of local currency, one US dollar and one local currency. This situation mainly occurs in the company’s internal transactions, that is, trade between subsidiaries or between subsidiaries and parent companies. Taking the exchange of US dollars to RMB as an example, the bank charges an exchange fee of 1.25% of the transaction amount. If RMB can be used for cross-border trade settlement, one of the exchanges can be reduced and related costs can be saved.
Finally, cross-border trade settlement in RMB can speed up settlement and improve the efficiency of corporate capital use. Reducing one exchange itself reduces the relevant links of capital flow, shortens the settlement process, and improves the efficiency of capital use. At the same time, since there is no need to trade foreign currency derivatives, enterprises can reduce the corresponding human resources investment and related capital investment, which is also conducive to speeding up the operation of enterprises.