July 6, 2015 | By HSBC Bank Canada |
With expected weakening of the RMB against the CAD dollar in 2015, contracts settled in RMB will be more attractive to Chinese buyers than those denominated in either Canadian or U.S. currency.
The Chinese renminbi (RMB) has been accessible outside China for only a few years, but it has already become the fifth-most-popular trading currency in the world. With the hope for the RMB to become a global reserve currency alongside the U.S. dollar over time, the Chinese government has been carefully managing the global rollout or “liberalization” of the RMB. Late last year, China signaled its support for more trade with Canada by signing a currency swap agreement and authorizing the first RMB trading hub in North America. The clearing centre officially opened in March 2015.
The trading hub enables the direct exchange of the Canadian dollar with the RMB in real time, allowing the trade to be completed in Canadian time zones and eliminating the step of converting to another currency first. Through a related agreement, China has also issued a quota for institutional investors to trade in RMB-denominated stocks and bonds issued onshore in China and through the Hong Kong Stock Connect.
Globally, the most common use of the RMB is for import/export activities. The Canadian government, trade organizations, and banking industry worked hard to have the RMB trading hub located in Canada in an effort to fuel more trade and investment flows between Canada and China at a time when Canada’s economic growth has stalled and domestic expansion and investment possibilities are limited.
China is already Canada’s second-largest trading partner after the United States, as well as its fastest-growing, but the balance of trade has shifted decidedly in China’s favor since 2001. In 2013, China’s imports from Canada totaled US$25.2 billion, while Canada’s imports from China were more than double that amount at US$51.2 billion.1
Source: HSBC RMB Internationalisation Study 2015
Remarks: 1 Industry Canada’s Trade Data Online database