China extends RMB internationalization with Australian swap deal
The People’s Bank of China (PBoC) has signed a bilateral local currency swap agreement with the Reserve Bank of Australia (RBA), as it continues the gradual push towards the convertibility of the RMB.
The agreement allows for the exchange of local currencies between the two central banks of up to AUD30 billion or RMB200 billion. It is for an initial period of three years and can be activated by either party. The RBA said the main purposes of the swap agreement are to support trade and investment between Australia and China, particularly in local currency terms, and to strengthen bilateral cooperation.
“The agreement reflects the increasing opportunities available to settle trade between the two countries in RMB and to make RMB-denominated investments,” says the RBA.
The deal follows the decision by the Chinese authorities in November to allow convertibility between the AUD and RMB in the interbank market in China.
For China, it marks the continuation of its policy of reducing its dependence on the USD by offering seed money to its trading partners so trade can be conducted in RMB.
Since 2008, the PBoC has implemented a number of swaps with other central banks, including Japan, South Korea, Thailand, Malaysia, Kazakhstan, the UAE and struggling countries, such as Iceland and Belarus, in a bid to boost trade.
HSBC believes that $2trillion of Chinese trade will be settled in RMB by 2015, making it one of the top three trading currencies in the world.
That would be some leap given that figures from Swift showed that although RMB payments rose by a third in February, it was only the 17th most-used global payment currency.
The data also showed that among China’s five biggest trading partners in Asia, RMB payments in February with Australia were the lowest in the region.
Paulo Maia, chief executive officer of HSBC Bank Australia, welcomed the swap deal, saying it was an important development in the ongoing internationalisation of the Chinese currency.
“Given the role of China as Australia’s number one trading partner, accounting for around one-fifth of our trade, the renminbi is already playing an increasingly important role in Australia’s international trade,” he says.
“This will also support Chinese corporations wishing to invest abroad with the renminbi and for foreign companies wishing to invest in China. It’s important that Australian businesses prepare for the increased use of the renminbi.”