MANILA, Philippines — Businessmen will support the central bank’s move to encourage the use of the Chinese yuan or renminbi (CNY) as trade currency which should lead to higher volume of business between the two countries.

Philippine Chamber of Commerce and Industry (PCCI) President Francis Chua said they could work with the Bangko Sentral ng Pilipinas (BSP) on the use of CNY as settlement for trades.

“If we use it more as trade currency (with China) then we will capture as much business as we want. We should definitely work on that idea,” said Chua.

The BSP has been reviewing the use of CNY as settlement for trades and the most immediate impact seem to be that it will reduce the volume of peso-US dollar trades.

Banks and foreign exchange traders consulted by the BSP have confirmed that the liquidity of the CNY in the domestic market is ‘very thin’ compared to the US dollar and other major currencies. If there were large CNY settlements it was being done in the black market.

According to Chua, ‘why (do we) let it remain in the black market? We should bring it out in the open. (Of course the BSP) will always take the time to study and let’s see how we can help.” “It’s a good plan,” he added. “Historically, China is the one who refused to allow the renminbi as a currency to go international (but) if you can trade with any currency, the better.”

The central bank has been studying the possibility of using CNY for the settlement of trades between the Philippines and China, and if this will reduce liquidity in the peso-US dollar market and how will this impact on exchange rate stability.

CNY is an emerging new global reserve currency with China holding the largest foreign currency reserves in the world at over $3 trillion, surpassing Japan as the second biggest economy after the US. The CNY also continued its rise vis-Ã -vis the value of the US dollar which prompted global money managers to start buying the renminbi.

Since 2006, the CNY is a currency convertible with the BSP, thus it is an acceptable currency for export receipts.

BSP Assistant Governor Ramona Santiago in a memo submitted to the Monetary Board said trade settlement via CNY is already practiced but these transactions are still too small to take note of. There was only one reported transaction in 2009 and no renminbi-denominated trades at all last year.

At the moment the Philippines is still a net exporter to China which would have resulted to net foreign exchange inflows and these inflows, said Santiago, may have contributed to the strength of the peso since 2006 until the end of 2010.

As for its impact on the peso and the local exchange market if trades with China are settled in CNY, Santiago said this would probably reduce the volume of peso-US dollar trades. “(This) may result to less market activity and therefore, lower peso-US dollar exchange rate volatility.”

Presently trades between the Philippines and China are still small, averaging only 5.4 percent of the trading volume in the Philippine Dealing System in the last five years.

Early last year, BSP Governor Amando M. Tetangco Jr. made the announcement that the banking sector’s renminbi transactions were expected to increase as trade with China and the Philippines continue to expand. In 2009, banks’ CNY transactions amounted to CNY174.6 million from only CNY50,000 in 2008.

Tetangco noted at the time, that renminbi business would grow as more banks realize the business opportunities in dealing in CNY. Between 2009 and 2010, six local banks opened renminbi deposit products. These include Metropolitan Bank and Trust Co., Bank of the Philippines and Philippine National Bank.