UK retailers pay in Chinese currency

A growing number of UK retailers have started in recent months to pay their Chinese suppliers in renminbi, which can help them to deliver cost savings of about five per cent, according to Barclays Capital.

The opportunity for UK chains to pay in the local currency has been made possible by the renminbi's move to a managed floating exchange rate in June 2010, replacing its peg to the US dollar. As a result, the renminbi has become more freely traded.

When striking deals with retailers, Chinese suppliers no longer have to build in a buffer to guard against a significant appreciation of the local currency and protect their margins. Such payments in the local Chinese currency give UK chains the chance to take control of the entire currency risk, with potential cost-saving benefits.

Sam Ford, managing director in risk solutions at Barclays Capital, said: "By paying their Chinese suppliers in the local currency, instead of US dollars or sterling, it allows retailers to negotiate better terms with those suppliers."

He said: "Retailers have moved from talking about this to us to actually paying their Chinese suppliers in the local currency. This change in retailers trading directly in renminbi has only started to occur over recent months."

Barclays Capital declined to name retailers it is working with on currency.