The Bank of China, one of the country’s largest state-owned banks, is expected to have its Sydney branch named as a clearing bank for trade in yuan, opening the door for exporters to tap a key market.
The move means Sydney will become one of a handful of financial services hubs in the world to host a clearing bank for trade in the Chinese currency, also known as the renminbi.
Sydney is set to join the ranks of leading global financial services centres including Hong Kong, Singapore, London, Frankfurt, Taipei and Seoul, which have obtained clearing bank status.
“Australia’s economic future is undeniably linked to China,” HSBC Australia chief executive, Tony Cripps, said.
He said a regional yuan clearing centre in Sydney would support growing demand for yuan-denominated trade settlement and investment.
It will do this by creating the infrastructure needed to facilitate high volumes of yuan-denominated business onshore
“For Australian companies this means more efficient and rapid settlement of renminbi payments and access to more Chinese customers who prefer to deal in the Chinese currency,” he said.
However, a source close to China’s central bank told Business Spectator the appointment of a Sydney-based clearing bank was more of a “symbolic gesture” and the Australian side was keener than the Chinese.
“There is only so much governments can do to encourage people to use renminbi to settle trade. It is really up to the business community to make that happen,” the source said, adding that there was much greater acceptance of yuan in Southeast Asia than in Australia.
It is estimated only about 1 per cent of trade between Australia and China is invoiced in yuan.
Although big Australian commodities exporters have in the past flirted with the idea of using yuan, the overwhelming majority of lucrative trade in commodities export is still denominated in US dollars.
Andrew Whitford, head of Westpac China business, said Australia could not take full advantage of yuan internationalisation until businesses started to trade and settle in the Chinese currency more actively.
“Many corporates may be aware that there could be benefits available from direct renminbi payments, but for a number of reasons these are not being captured,” he said.
“Years of familiarity dealing with the US dollar are unlikely to be replaced overnight.
“Many businesses prefer the certainty of the familiar over the promises of the new.”
The appointment of a clearing bank is the latest move by both countries to further the use of Chinese currency. The Reserve Bank signed a bilateral local currency swap agreement with the Chinese central bank in March 2012.
The Reserve Bank has also started to hold yuan reserves as well as government debt. The Australian Securities Exchange started a yuan settlement service in February in partnership with the Bank of China.
The yuan has been the world’s second-most-used trade currency since December 2013. The use of the currency has been steadily increasing — 18 per cent of China’s trade was denominated in yuan, according to first-quarter 2014 data. This is expected to rise to 30 per cent by 2015.
Globally speaking, Australia is still a minor player when it comes to the business of trading in Chinese currency.
Former Taiwanese premier Sean Chen thinks four cities have a realistic chance of becoming regional hubs for yuan trade: Hong Kong, Singapore, London and Taipei.
“Mainland China’s trading relationship with the UK and Singapore is relatively small in comparison to Taiwan. Our trading relationship is strong and we have a lot of yuan-denominated assets,” he told Business Spectator.