Only 18% of external Chinese trade was settled in renminbi last year. While an astonishing leap from the 2% renminbi utilization in 2010, it remains significantly less than the US dollar. Given the Chinese currency's relatively meteoric rise - including homeland encouragement of its growth and globalization - many may view such a percentage as both a surprise and a disappointment. That said, recent evidence suggest things may be about to change.

For Chinese exporters, several factors acted as a dampener of enthusiasm towards pricing in their native currency. First, currency risk on trade conducted in renminbi doesn't disappear. While it is transferred to the non-domestic counterparty, the latter often demands correspondent price-cuts to reflect the imbalance of risk, and such reductions would require the Chinese trading partner to reveal to clients the way in which it prices currency risk.

Second, until recently, documentary regulations were unfavourable to the renminbi. The Chinese corporate was responsible for providing the government with documentation to verify that payments stemmed from a real trade: paperwork that was slow and laborious and could often suspend settlement.

Third: cost. Many cross-border payments with China utilize letters of credit (L/Cs). And discounting L/Cs in USD (via the forfaiting market) is less costly to Chinese exporters than doing so in renminbi, due to higher liquidity of the USD and therefore lower discounting rates. In this respect, it was beneficial for both sides to invoice and settle in USD.

Changing landscape

Yet the renminbi - known colloquially as "kuai" - is beginning to be reconsidered by Chinese corporates, and for good reason. The documentary regulations that delayed payment have recently been significantly eased. Trade settlement banks can now pay the Chinese exporter first - as long as the relevant documentary proof is received within an acceptable time period.

And the higher cost for renminbi L/Cs over those denominated in USD does not apply if the USD is a foreign currency for both parties. Renminbi, for example, has overtaken both the US dollar and the euro as a settlement currency in East Asia - and understandably so. But other countries are pushing up the value of renminbi-settled trade as well, most noticeably Chile, India and South Africa, who have strong trade links with China.

Furthermore, frequent changes in policy measures, each more relaxed than the last, are fast bringing about the liberalisation of the currency. And as it becomes more internationalised and used across the world - particularly in Europe and Australasia - settlement will become increasingly attractive and convenient. Furthermore, the influence of corporates from China, now the world's biggest exporter, will see them negotiating for favourable trading terms - potentially away from the USD.

Such a shift will be self-perpetuating. For instance, due to the still complex restrictions on movements of the currency, multinationals dealing in renminbi accumulate offshore pools of the currency, making them more likely to utilise the currency for further trade. But, above all this, the value of the renminbi stands for itself. Despite looser internal control meaning slight increases in volatility, the Chinese currency is still - in spite of its latest dip - predicted to appreciate over the long-term; an expectation that will attract non-Chinese companies more than any other consideration.

The winds of change

And the numbers are starting to reflect this - even in the land of the dollar. The value of renminbi payments settled externally by the US was an impressive 327% higher this April, year-on-year, which means that even US corporations are joining the ranks of those 1,050 financial institutions in over 90 countries that choose to import from or export to China using the renminbi.

Given that the currency was only introduced to the trade finance industry five years ago - and is now one of the main trade currencies, with the value of renminbi payments quadrupling between 2010 and 2012 alone - more can be expected. Certainly, more corporates will become aware of the cost and efficiency benefits, not to mention the competitive edge with increasingly strong Chinese counterparties, and choose to conduct business in the currency.

Caution and even trepidation have been understandable up to this point, but we are now at a tipping point: from here on the dangers of hesitation outweigh the benefits. Undoubtedly, we will see the kuai embraced more widely by corporates: its growth is a near-certain bet.

Elke Doser is the associate director, trade services, Asia-Pacific, at UniCredit and the content of this article is provided as general information only and should not be taken as investment advice.