It could prove very lucrative for Europe to learn how China pays
Irish companies should do themselves a favour and get to grips with trading in Chinese renminbi
Trade in the 19th Century was primarily conducted in sterling, but by the 20th Century trade flows were dominated by the US dollar. For the 21st Century the renminbi - also known as the redback - could well assume pole position as the global currency of trade.
China has many of the right conditions for the RMB to become a global reserve currency - one that could over time supersede the euro and the US dollar.
It is the world's second-largest economy and largest exporter, and it has led global growth for the past decade. It is also a major importer of raw materials as well as a growing consumer of high-end products due to the emergence of an affluent Chinese middle-class.
Furthermore, the opening up of China's onshore capital market has marked an important step in the RMB becoming a major investment currency.
Recent steps by Chinese policymakers to allow more flexibility in the exchange rate are also making the currency more attractive. The intervention last week by the People's Bank of China to devalue against the US dollar will do nothing to dampen this appeal in the longer term.
Despite recent volatility, we expect the RMB to achieve full convertibility by 2017. RMB cross-border trade is already fully deregulated, and companies from outside China can use it for trade, subject to any local restrictions that may apply in their home countries.
The currency can be used for a wide and growing range of transactions, and controls on capital transactions have been relaxed. Indeed, the RMB is now ranked in the top five currencies used in global payments, according to SWIFT. It is also the ninth-most-traded currency by the Bank for International Settlement (BIS), with a 2.2pc share of the global trading volume. RMB trade settlement is set to top 50pc of China's total trade in 2020.
The cross-border trade settlement and payment process in RMB has become much simpler than it is in other currencies, so much so that companies exporting to China may be at a competitive disadvantage if they quote in a foreign currency such as euro or US dollars as this creates exchange rate risks and additional costs for buyers.
From an Irish perspective, the growing significance of China as a trading partner means the ability to trade in RMB will become increasingly important. Ireland-China trade has grown quite dramatically in recent years, and several hundred Irish companies now export to China, with well over half of them maintaining offices there.
According to HSBC's latest trade forecast, exports from Ireland to China will grow rapidly over the coming years, with annual increases of 11pc between 2016 and 2030, making the country our fourth-biggest trading partner by 2030, overtaking France and Japan in the process.
But this growth will not simply happen by itself. Irish companies will have to seek ways of reducing the cost of doing business and look for new trading partners in China.
Irish companies enjoy an advantage at present due to the fall in the value of the euro in the course of the past year, but this cannot be relied on in future.
Indeed, for Chinese importers, the current low value may actually represent a risk, as any appreciation in its value can drive up the cost of an order quite appreciably. Irish exporters pricing their goods in RMB can offer a ready solution to this problem.
Similarly, Irish firms importing from China may be able to avail of far more competitive deals if they are capable of trading in RMB. Chinese exporters tend to cover themselves for the risk of a fall in the value of the buyer's currency by adding around 3pc to the invoice.
It should, therefore, come as no surprise that an HSBC survey of internationally trading Chinese companies revealed that more than 50pc of them would be willing to give discounts of up to 5pc on RMB-denominated settlements.
Irish companies willing to use RMB also gain more than savings. They can get exposure to many smaller Chinese suppliers who may not have been accessible before now due to their reluctance to take on international currency risks. This can help reduce costs all along the supply chain.
Furthermore, if the Irish company is engaged in exports to and imports from China, using RMB for both legs creates a natural hedge for them.
Utilising the RMB will also send a very strong culturally positive message that cannot be underestimated in building trust between suppliers and buyers.
There are also very significant potential benefits for the wider Irish economy. China is rapidly becoming a global FDI powerhouse.
Outbound Direct Investment from China increased 16.8pc to over US$90bn last year, and much of this growth is being accounted for by Chinese companies seeking to move up the value chain - buying western manufacturers not just for their brands and market share, but also to acquire the intellectual property and skills tied up in the manufacturing process itself.
In addition, support services for Chinese companies expanding in Europe is a new activity for Chinese banks, and they are looking to London, Paris and Luxembourg for expansion. These are all areas of opportunity for Ireland. Our well-established attractiveness as an FDI location should put this country high on the list for Chinese ODI.
An expertise in RMB trading among Irish firms and the financial community can only be a good idea in all these respects.
For companies seeking new trading opportunities and economies looking for investment and new avenues of growth, the rise of the RMB as a global reserve currency could represent the dawn of a new era - one that Ireland cannot afford to miss out on.
Alan Duffy is the chief executive of HSBC Ireland
Sunday Indo Business