Thursday, 21 September 2017 Sydney
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EASY COME, EASY GO, EASY TRADE::

The People’s Bank of China has granted licenses for direct trading, taking out the added cost for Australian businesses. Sophie Weisz reports.

Australia and China have reached a new currency trading agreement to provide greater opportunities for Australian businesses.  A landmark currency deal between China and Australia means Westpac and ANZ customers can directly trade Australian dollars into Chinese Renminbi (RMB).

The currency trading agreement will draw these economic relations together. It is expected to create a more accessible exchange for trade and investment between China and Australia, facilitating greater two-way investment and tightening  connections as China moves towards internationalising its currency.

 

For the first time, under the deal the Australian dollar will be directly convertible into Chinese Renminbi, cutting out the need to convert first to US dollars, and making trade documents far simpler for businesses. Australia will have only the third currency in the world that can be directly traded, after the US dollar and the Japanese yen.

This is a boost for not only for big businesses, but it will also advantage small- and medium-sized enterprises  planning to engage with China. 

ANZ Head of Renminbi Sales and Product, Steve Kelly, said it is an important step in strengthening bilateral economic and trade connections between China and Australia.

“In the future, as the AUD$/RMB market increases in depth, more participants and higher volume, the markets risk spreads will decrease and save customers a couple of basis point,” Mr Kelly said. 

Using RMB and AUD$ in trade would reduce risk and save costs for exporters and importers, according to Mr Kelly. These changes will tighten the relations between China and Australia, putting Australia ahead of competitors.  

“Direct AUD/RMB encourages trade volumes to grow further, especially in the small- to medium-sized business, as over time transaction costs will come down. Australian exporters should also have a growing pool of RMB-denominated products to invest their export proceeds in to,” said Managing Director Foreign Exchange Trading for Westpac Institutional Bank, Graeme Edie.

“It makes it easier for exporters and importers from both economies to do business with each other. This should only see trade volumes continue to grow as we progress through the rest of this decade. This will be achieved via lower transaction costs and easier methods for trade companies to manage risk. This is a continuing part of China’s long road to RMB internationalisation as they encourage market participants to use RMB,” he said. 

As China continues to move its economy towards greater financial openness, Australia appears to be in a key position to bring the financial markets closer. 

The development of direct trading between the AUD and RMB is expected to, over time, help lower currency conversion costs, facilitate the use of RMB and AUD in bilateral trade and investment and promote financial cooperation between the two countries.

easycome2“We expect the volume of client flow will increase over time, clients will benefit from access to deeper pools of liquidity, increasing pricing transparency and clients confidence to settle AUD for CNY and vice versa,” said Mr Kelly

 

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