East meets West! Sydney becomes renminbi trading hub with official clearing arrangements

China’s will to branch into overseas markets has brought about many large developments with regard to new possibilities for Western firms, with the latest being yesterday’s agreement by the Australian Reserve Bank and People’s Bank of China to establish official renminbi clearing arrangements.

Australia has positioned itself very keenly among the burgeoning Asia-Pacific nations, having conducted a shrewd campaign of establishing itself as a first class, Western nation with a strong capital markets economy and regulatory structure, as well as strengthening trade ties with China, Hong Kong, Malaysia and Singapore, thus ensuring Australia’s place as a bridge to the Far East for Western firms.

The state-owned People’s Bank of China operates under the stringent rules of the Chinese communist party, which means that free trade arrangements with firms overseas are not part of its remit, however with China’s rapidly developing capital markets economy and strong demand for yuan, the government is taking steps to transform the familiar ‘Made In China’ tag to ‘Made By China.”

According to the Reserve Bank of Australia, this will serve to strengthen Australia’s ties with China even further, however more importantly for the FX business, it will provide freely accessible yuan liquidity as the trading will be conducted in Australia rather than China.

Whether the future of Hong Kong’s longstanding stature as an entry point to China hangs in the balance remains to be seen, especially in light of Hong Kong’s recent political and social unrest which has resulted in thousands of protesters taking to the streets and the sustained closure of many banks, thus disrupting the order flow and raising questions as to its long term sustainability.

The opening of a Free Zone in Shanghai, and liquidity provision via Sydney further serves to point toward China being able to conduct certain business directly.

According to Australian source Business Spectator, ANZ chief executive Mike Smith said the creation of a trading hub was a significant achievement.

“The renminbi is expected to dominate Asian trade and could become a genuine rival to the US dollar as a global reserve currency,” he said.

Westpac will be one of the first local banks to connect with the RMB hub, and its chief executive Gail Kelly said it would create greater opportunities for the bank’s customers.

“The ability to settle transactions in RMB in real time through Sydney will make it faster and easier for customers to trade and transact in RMB,” she said.

Rob Whitfield, the head of Westpac’s institutional bank, also said it would encourage a build of Australian deposits of RMB and stimulate activity in RMB-denominated financial products.

For Australian companies, the development means more efficient and rapid settlement of renminbi payments, HSBC Australia chief executive Tony Cripps said. It would also “bring access to more Chinese customers who prefer to deal in the Chinese currency.”

Treasurer Joe Hockey said Chinese authorities would shortly announce the designated clearing bank, which will support Australian importers and exporters in their cross-border RMB transactions.

In the advent of this development, many retail FX companies, including Australia’s Pepperstone, have added yuan to their list of instruments, and Moscow Exchange has been positioned ideally for Russia’s recent agreement with the People’s Bank of China to cooperate on yuan and ruble liquidity.

Once there becomes a means of conducting business via hubs such as these directly with a Chinese audience, whether monitored by the government or otherwise, the gates will be wide open for a vast, willing and largely untapped market from which many FX firms are already reaping huge rewards despite the entry barriers and reliance on local representatives and IBs which are costly and have considerable power due to their necessity.

By the same token, Chinese clients are unanimously convinced that Western business environments are prudent, transparent and secure, thus the majority, unlike traders in Japan, will happily conduct business with firms from overseas.

With venues emerging in the Far East such as the Singapore Exchange, and Moscow’s keen interest in Chinese business preceding this milestone step which China has now taken by placing Sydney at the heart of the free world’s interest in the Chinese market, it is clear that all eyes are looking East.

Read Also: