Bank of China is in negotiations with Cambodia’s central bank on the promotion of business transactions in Chinese yuan.

The official talks reflect rapid trade growth between the two countries at a time when several commercial banks in Cambodia have launched yuan remittance and trade-settlement products.

The Chinese government has given tax benefits to Chinese companies that have settled foreign trade in the currency since 2010, but the discussion between the National Bank of Cambodia (NBC) and state-owned Bank of China was a sign that China would take a more proactive hand in moving away from the US dollar medium in bilateral trade.

“Bank of China keeps working on pushing RMB products or RMB trade settlement in Cambodia because a lot of Cambodian companies don’t know about the trade products,” Han Weida, a senior member of the bank’s support department at its branch in Phnom Penh. The yuan is also known as renminbi, or RMB.

Letters of credit in yuan would remove potential loss due to fluctuations in the dollar, she added, although she did not provide details on the substance of talks with Cambodia’s central bank. Nguon Sokha, director general and spokeswoman for the NBC, could not be reached at the time of reporting.

ANZ Royal Bank launched a yuan remittance service last month. The bank’s chief executive Grant Knuckey has said ANZ Royal hopes to angle itself as a major facilitator of trade in yuan between Cambodia and China.

Several other banks such as Cambodia Public Bank, Union Commercial Bank and Maruhan Japan Bank have also advertised yuan settlement services.

The yuan is projected to become a major trading currency in the region in the not so distant future. About 4 per cent of global trade was conducted in the so-called “People’s money” as of April.

Given the turbulent economic state of the European Union, the yuan could soon overtake the euro, which accounted for 7 per cent of global settlement, according to ANZ’s head of greater China economic research, Li-Gang Liu, who spoke on the internationalisation of the yuan in Phnom Penh last month.

The exact role the yuan will play in Cambodia has not yet been determined. While settlements in yuan would cut out the US dollar in transactions throughout the region, the predominant usage of the dollar in the Kingdom would still expose yuan trade to fluctuations in the world’s dominant trading currency.

“Generally speaking, the diversification of international trading currency is a good thing. However, because the Cambodian economy is highly dollarised, if Cambodian companies used RMB, it means they are vulnerable to the exchange fluctuation between USD and RMB,” said Hiroshi Suzuki, chief executive and economist at the Business Research Institute for Cambodia.

Business transactions in Cambodia’s main cities are done largely in dollars, which would require conversion to dollars regardless of the currency in which trade with China was conducted.

Cambodia and China plan to double bilateral trade to US$5 billion by 2017. However, experts have noted that Cambodia’s trade deficit is widening and that increased trade with China would mean an influx of Chinese goods and services into the Kingdom.

To contact the reporter on this story: May Kunmakara at [email protected]