Earlier this year we discussed how Canada was aiming to host the first Chinese currency hub in the Americas.
Well now it's official, with Canada's financial capital, Toronto, the chosen winner.
With so much international business still transacted in U.S. dollars, China's central bank, like most others, holds dollars in reserve, or buys them as needed.
Doing business this way is cumbersome and expensive since currencies first need to be converted into dollars for the buyer's payment, and then back out of dollars if the seller wants to return it to his home currency.
Increasingly, countries are seeking alternatives when trading with the world's number two economy… and China's only too happy to help.
The only questions left to ponder after this and other related developments, are who will benefit, and who will lose?
These Moves by China Will Boost Trade… but for Whom?
With nearly $4 trillion in foreign exchange reserves in U.S. government debt, China can't wait to lighten its risky load. The last thing it needs is more dollar assets.
That's why I expect China (and others) to take ever larger steps to move away from its dollar-dependent investments. Expanding trade with nations that bypasses the dollar is crucial, a trend that's only going to grow.
The proof: yuan trading hubs are popping up in nearly all the major financial centers.
At the recent Asia-Pacific Cooperation (APEC) Summit, the Canadian government announced its central bank, along with China's, agreed to a $27 billion currency swap, to be in place for three years.
But the real show stopper is the yuan's newest clearing hub located in Toronto, set to be the first ever established in the Americas.
China's largest commercial bank, Industrial and Commercial Bank of China, will use its Canadian branch to act as clearing hub. The arrangement will facilitate Canadian banks' efforts to handle yuan payments for their clients.
Under the Renminbi Qualified Foreign Institutional Investor program, Canada was awarded a quota of 50 billion yuan annually, so domestic investors can partake in mainland China's securities markets.
Still, other Chinese moves are set to boost trade even further…
Hong Kong and mainland Chinese regulators have established a structure, the Shanghai-Hong Kong Stock Connect, to link the two jurisdictions' stock markets.
Facilitating this, Hong Kong has done away with the daily 20,000 yuan conversion limit for its residents, easing investment into the Chinese stock market.
These new regulations will also allow other foreign investors to buy Chinese "A" shares through Hong Kong, and for Chinese investors to access certain Hong Kong shares.
Hong Kong and Macau have been established yuan hubs for some time, but several others have been set up over the past two years to help promote use of the yuan globally. These include Taiwan, Singapore, London, Frankfurt, Paris, Luxembourg, and Seoul.
In the case of Frankfurt Joachim Nagel, a board member at the Bundesbank (Germany's central bank), said the yuan is "gaining traction as a trade currency and has in my opinion already reached the level of an investment currency", adding "It is only a matter of time before the renminbi becomes an international reserve currency."
Just recently we discussed this: "Back in mid-October anonymous sources at the European Central Bank (ECB) indicated that the Governing Council would deliberate on the idea of buying Chinese yuan to include in their mix of reserve currencies."
The Head of Foreign Exchange (FOREX) sales for corporate clients at HSBC Holdings in Germany, Sven Juergensen, said "It's clear from our observations in the course of 2014 that the yuan is no longer an emerging market currency."
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.