September 18, 2014

How To Deal With The Extra Cost of Chinese Currency Fluctuations

Chinese-Currency

It’s the Chinese New Year, and 2014 is the year of the Horse.

If your small business works with Chinese companies, there are some things to know.

Although we often think of Chinese currency as the Yuan, the official name is the Renminbi (RMB).  Use of RMB currency is growing.

According to November and December SWIFT data, the RMB has broken into the top ten most-used currencies for payments.

But if you do business with China, exchanges between the dollar and this Chinese currency may bring risks.

According to Alfred Nader, vice president of corporate strategy and development at Western Union Business Solutions, there are some things you can do to decrease the financial risk of currency fluctuations. Here are three strategies:

Pay Chinese vendors and partners in RMB instead of U.S. dollars.

“Our research shows that one in five Chinese suppliers add roughly 3-4% to invoices to cover FX risk, which is eliminated with RMB payments,” says Nader. Knowing this, U.S. businesses can look to negotiate a discount with their Chinese suppliers by asking if they want to be paid in RMB, he adds.

Lock in exchange rates for as long as 9 months.

This creates stability on small business’ balance sheets.  When you know your expense levels, you can more accurately forecast.

Use the offer to pay in RMB to open a dialogue.

You can initiate a conversation to change terms and improve business relationships, when you raise the currency issue.  By meeting the other side partway, you begin an important and potentially profitable dialogue.

Chinese currency photo via Shutterstock

2 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

2 Reactions

  1. I’ve never really tried my hand on Forex although I know that it can bring in some pretty nice profits. But I am still a little apprehensive as I can always see exchange rates go up and down. And when it comes to trading Yuan to dollars. I don’t know if it is a really nice idea.

  2. Anita: Have you heard the rumor that China is thinking of backing its currency with gold?

    From the news:

    “China Accelerates The Push For Its Citizens To Buy Gold” – King World News

    “Chinese Gold Purchases In Preparation For The Adoption Of The Gold Standard Are Starting To Have A Dramatic Impact On The Gold Price (Part 2)” Gold-Eagle

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