Reserve Bank of Australia governor Glenn Stevens says the Australian financial system needs to be “well prepared” for a sharp increase in the use of China’s currency for trade purposes.
Speaking at the launch of the official Australian renminbi (RMB) clearing bank in Sydney yesterday, Mr Stevens said the key direct benefit of the official bank is that it can more efficiently facilitate transactions between Australian firms and their mainland Chinese counterparts using the Chinese currency.
“Bank of China (Sydney)'s ‘official’ status – which was granted by the People's Bank of China (PBC) – affords it more direct access to the Chinese financial system, with flow-on effects for local financial institutions and their customers,” he said.
Mr Stevens congratulated the Bank of China (Sydney) on the official launch of RMB clearing facilities.
Last year, Bank of China entered the third-party channel after signing a partnership with mortgage aggregator AFG.
Its establishment as a clearing bank for China’s currency will help to raise awareness among Australian firms that the local financial system has the capacity to effect cross-border RMB transactions on their behalf, Mr Stevens said.
“This is important, because over the long run, Chinese firms may increasingly wish their trade with Australian firms to be settled in RMB,” he said.
“To be sure, today the bulk of global trade is settled in US dollars. But with China now a very large trading nation, and continuing to grow into a ‘continental-sized’ economy, it would be surprising if at some point we do not see much more use of China's currency for trade purposes.
“Already its usage is growing quickly, if only from a small base.
“So Australian firms and the Australian financial system need to be well prepared.”
While the RBA has invested a small proportion of Australia's foreign currency reserves in RMB, Mr Stevens said the development of an RMB market in Australia will depend on the extent of benefit the private sector sees in using RMB for trade settlement and investment purposes.
“It is worth noting that private sector-led initiatives are now becoming increasingly important drivers of the RMB market's development. For example, forums such as the Australia-Hong Kong RMB Trade and Investment Dialogue and the ‘Sydney for RMB’ Working Group are beginning to have a more prominent role in raising awareness of the financial sector's capacity to conduct RMB business and in identifying any further market development issues that may need to be addressed,” he said.
Mr Stevens said the opportunities for Australian and Chinese investors to invest in each other's financial markets could grow significantly in the coming years.
By increasing their familiarity with the RMB as an international transaction currency, local financial institutions, investors and firms are likely to be better placed to take advantage of these future opportunities as they arise, he said.