ICBC has recently pioneered in launching RMB settlement for commodity trading in China. With this business, domestic enterprises can use RMB in the derivative trading of commodities, hedging against the risk of price fluctuations. ICBC is by far the only commercial bank in China to launch the business.

According to an ICBC official, as China is gradually becoming a major country in global commodity trading, enterprises have growing financial needs in commodity hedging and avoiding exchange rate risks. As early as 2011, ICBC launched USD settlement for commodity trading. Based on this business, the RMB settlement for commodity trading of ICBC will better facilitate Chinese enterprises to avoid price risk via financial derivatives. First, this business covers a broad scope of commodities -- over 30 commodities under five categories, including precious metal, base metal, mineral, energy, agricultural products and soft commodities (e.g., refined sugar, cotton, coffee, paper pulp, rubber and palm oil). Second, derivatives available cover various financial instruments, including forwards, swaps and options. Third, the transaction models abound with both “USD quotation, USD settlement and foreign exchange trading by customers” and “RMB quotation, RMB settlement and foreign exchange trading by the bank” available based on customers’ needs. Transactions of the first model have officially kicked off ,while the second model will be launched soon to facilitate enterprises' direct use of RMB in trading.

Take the transaction model of “USD quotation, USD settlement and foreign exchange trading by customers” as an example. For a Chinese soybean processing enterprise concerned about the rise in soybean price in half a year, it can sign a six-month forward agreement in USD with ICBC based on the first model, agreeing to stick to the original soybean price upon expiration. If the soybean price rises in half a year, the enterprise can settle the price difference with ICBC, and choose either to keep the income or exchange it into RMB, which avoids the risk of soybean price rise.

Experts believe the launch of RMB settlement for commodity trading by ICBC is especially beneficial for enterprises lacking foreign exchange fund, as it can help them hedge by commodity trading and avoid risk of commodity price fluctuation. In addition, it follows the trend of increasing cross-border RMB use, and expands the application of RMB in payment and settlement.