China's political and economic presence surges daily. Lockstep with that surge is the growing significance of its currency.
Along with China's emergence as the world's second-largest economy, its yuan recently displaced the euro and became the second-most used currency for international trade.
Chinese leaders are intent on internationalizing their currency by growing its acceptance, perhaps even challenging the U.S. dollar as the new reserve currency, a trend I've highlighted here before.
To reach that goal, new yuan trading centers are being established.
But the location of the next major trading hub is almost certainly not where you'd expect.
And the implications will redefine the power centers of global commerce…
North America's Newest Currency
China's central bank has pledged the yuan would become "basically convertible" by 2015. So as the currency "frees up," potential settlement centers are eyeing profits from converting currencies into and out of the yuan.
In an effort to gain first-mover advantage, major cities are rushing to become the next trading hub.
Right now, no city in the Americas has yet to emerge as an important settlement center.
But two major Canadian cities are jockeying for just such a coveted position.
According to a recent article in The Globe and Mail, "Leaders in banking, government and economic development in Toronto and Vancouver are pushing to make their cities hubs for settlement of the Renminbi [or RMB, also known as the yuan] in hopes of establishing a centre for trade in the currency."
High-level talks between the financial services industry and the department of finance have been ongoing for months, but efforts have recently been stepped up.
Neil Tait, who was a banking executive in China and is currently vice-chair of the Canada China Business Council, believes there will be a huge "first mover advantage" as there is still no such center in the Americas.
Why would Toronto's Bay Street win out over say, New York's Wall Street?
A lot of reasons. Some obvious, some perhaps more subtle.
New York and Toronto may share the same time zone, but the United States is clearly a much bigger trading partner for China.
Still, Canada's relationship with China is a less complex one, in both politics and business.
Thanks to its natural resources, Canada's a coveted supplier of many of the raw materials and energy that China needs… badly.
Last year China National Offshore Oil Corp. (CNOOC) acquired Nexen Inc. of Calgary. It was the largest purchase ever in a market economy. And since then, no other country has received more Chinese investment than Canada.
By contrast, CNOOC's 2005 bid for U.S.-based UNOCAL failed, while striking a nerve over the politically sensitive energy sector. China's done oil and gas deals with the U.S. since then, but none has come close to the size of the Nexen deal. In the past six years, China spent about $30 billion on Canadian oil and natural gas assets alone.
At 900 million barrels of oil annually, Canada is by far the largest oil exporter to the United States. But success with the fracking boom has the United States becoming increasingly oil and gas self-sufficient.
Though I expect the Keystone XL pipeline will eventually be approved, it's still not a slam dunk. And energy is a big part of Canada's economy. So Canadian leaders have been giving serious consideration to other potential customers.
Prime Minister Stephen Harper has stated that it's a priority for Canada to grow its exports of energy towards Asia, all the while reducing its reliance on the United States as a market.
But it's not just about Keystone.
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.