Once sign of the move away from the dollar as reserve currency that we’ve noted before is the shift away from its use as an invoicing currency in commercial transactions. The Financial Times provides another example, namely, that Chinese exporters are avoiding the dollar:
Rising numbers of Chinese exporters are shunning the US dollar or devising ways to offset the impact of the falling currency as they confront rising labour and raw material costs at home.
According to Alibaba.com, the online company that matches Chinese suppliers with international buyers, the vast majority of their almost 700,000 Chinese suppliers no longer use dollars to settle non-US transactions in order to minimise foreign exchange risk.
“They are moving to euros, pounds, Australian dollars or even quoting prices in renminbi,” David Wei, chief executive, told the Financial Times. Moreover, he added, prices quoted in dollars were now often valid for just seven days compared with the 30-60 days common previously.
The dollar has long been the currency of choice for Chinese and other exporters around the world. However, the impact of its recent weakening has led exporters to begin questioning its place as the de facto world currency.
The renminbi, which western governments have long alleged is undervalued, thus giving Chinese exporters an unfair advantage, has appreciated 6.7 per cent against the US dollar in the past six months. Economists expect it to rise 10-15 per cent against the dollar in 2008 and it is expected to rise a further 10 per cent in value this year, according to Qing Wang, economist at Morgan Stanley China. He warned that pace could quicken to more than 15 per cent should inflation in China, already running at a high level, continue to climb.
Quanzhou Leething Garment & Knitting, a Chinese men’s underwear factory, said it had started encouraging clients to pay in euros instead of dollars in November. While the Chinese currency has appreciated against its US counterpart in recent months, it has moved little against the euro. Orders placed in US dollars are now subject to having their prices adjusted according to the latest exchange rate just prior to shipping, said a company spokeswoman.
Dongguan Wang Cai Garment, based in the southern Chinese province of Guangdong, exports mainly to Europe and quotes prices in US dollars but this year began updating their quotations every week.
Other companies have taken more unusual approaches, such as setting their own exchange rates and, therefore, in effect raising prices.
Xiao Zheng, chairman ofDongguan City Shima Toys in southern China, said its price quotations were valid for three months but were calculated based on an exchange rate of Rmb6.6 to the dollar.
With the official exchange rate at Rmb7.01 to the dollar yesterday, this in effect raised prices 5.8 per cent.
“We are thinking about renewing our quotations every other month and we are also going to offer quotations in euros very soon,” Mr Xiao said.
Bruce Rockowitz, president of the trading arm of global supply chain company Li & Fung, said many Chinese companies still favoured US dollars because “everybody is used to using [that currency]. But it all comes out in the price.”
William Fung, managing director of Li & Fung said international buyers would have to accept higher export prices from China, especially for goods such as toys that are largely made only in the country.
“The final result is they will buy at a higher price, but at lower volumes,” he said. Mr Fung added that retailers are mitigating the effects of higher costs by locking in proprietary, or exclusive brands, which in turn allows them to charge higher prices to consumers.