New Sino-Canadian currency hub to be based in Toronto

The central banks of China and Canada have agreed to a currency swap worth 200 billion yuan ($32.67 billion) or C$30 billion, according to a Canadian government statement issued at a meeting of Asia Pacific nations on Saturday.

The swap will be effective for three years, according to a separate statement from China’s central bank. The agreement was announced after Canadian Prime Minister Stephen Harper met Chinese Premier Li Keqiang.

China’s central bank, the People’s Bank of China, will also create a clearing hub for the yuan – or renminbi, as the currency is also called – in Toronto, the first such hub in the Americas. The central bank said on Sunday that it would appoint the Canadian branch of the Industrial and Commercial Bank of China Ltd (ICBC) , China’s largest commercial bank, as the hub’s clearing bank.

The Toronto Financial Services Alliance (TFSA) welcomed and applauded the agreement announced to establish Canada as the first trading hub in the Americas for the Chinese currency, the Renminbi (RMB).

“We are very pleased that the federal government recognized the importance of this initiative to Canada’s economy and worked with the financial industry to help make it happen,” said Janet Ecker , President and CEO of the TFSA.

The currency swap will help set up the clearing bank, and allow the two banks to swap currencies if needed to ease trade and investment. The yuan clearing bank would allow Canadian financial institutions to use the clearing bank to process payments for their customers in yuan.

The move is in line with Beijing’s ambition to promote its currency to more international investors and eventually turn the yuan into a global reserve currency, while at the same time expanding China’s political and economic clout.

“This is a fantastic announcement for Canada and China relations, a terrific move for Canadian businesses to be able to compete more abroad, not only direct-to-China investment but … as more RMB/CNY activity takes place around the world,” said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.

China will additionally give Canadian investors the right to invest up to 50 billion yuan initially in China’s capital markets. The quota will be granted under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme.

Source: Reuters, TSFA


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