H&M to switch from USD to RMB?

Swedish fashion retailer H&M Hennes & Mauritz Ab (OMX: HM B) is considering sourcing its clothes in Chinese Yuan instead of U.S. Dollars, Wall Street Journal reported on Thursday. Currently four fifths of its sourcing transactions are done in USD even though the majority of its clothes originate from Asia and most of its revenues come from Europe. This means that all things being equal, Dollar strength versus the Euro is bad for the company.

The U.S. Dollar is gradually losing its status as the reserve currency of the world as other countries are starting to worry about the deteriorating fiscal outlook in the States as the lone superpower tries to cling onto its dominance in a world where globalization has shifted balance of wealth and well-being. H&M said a lot of its rivals have already made the switch into RMB.

In China it has been and sometimes still can be very frustrating for a foreign owned entity to go from Kronor/Euros to Dollars to Chinese Yuan, resulting in transaction costs at every inflection point. While H&M undoubtedly has it far easier, Chinese authorities want to see such a change take place. They are gradual in their approach to increase the importance of the renmimbi while carefully monitoring the implications, as recently signalled by yuan denominated futures contracts and easing cross border currency transactions. There has even been talk of a free trade area involving China, Japan and South Korea.