Direct trading of the Australian Dollar (AUD) and
the Chinese Yuan Renminbi (CNY) commenced on 10 April 2013,
pursuant to an agreement between the Australian Government and the
People's Bank of China. As only the third currency allowed to
directly trade with the CNY, this development signifies a deepening
of the Australia-China relationship and will reduce costs of trade
between the two countries. It also reflects a push by the Chinese
Government to increase the amount of its foreign trade settled in
CNY which could see the CNY become the dominant currency in Asia in
China is Australia's largest trading partner and is the
destination for nearly a third of Australian exports. Australia
ranks as the fifth largest source of imports into China. The value
of trade between the two nations is worth over AUD 125 billion a
year and, unlike other economies, the trading relationship is quite
complementary with Australia importing over AUD 40 billion of
Chinese products and services.
In the absence of direct currency trade between AUD and CNY,
trade between Australian and Chinese businesses has ordinarily been
settled by exchange through the USD as an intermediary. As
additional currency conversions were required, transaction costs
Direct Currency Trading Agreement
On 9 April 2013, Australia's Prime Minister announced a
direct currency trading agreement with the People's Bank of
China to launch direct trading between the AUD and the CNY. The
United States Dollar and the Japanese Yen are the only two other
currencies in the world which can be directly traded with the
Facilitating currency exchange between the CNY and AUD has been
an important goal to further strengthen Australia's economic
relationship with China. The direct currency trading
agreement is an advancement of the AUD 30 billion currency swap
agreement entered into by the Reserve Bank of Australia and the
People's Bank of China in March 2012.
Two Australian banks have already been given clearance by the
Chinese central bank to make the market for the direct currency
transfer and trading commenced on 10 April.
The direct currency trading agreement is not expected to have a
major impact in the near term, with only 1% of trade contracts
between Australia and China currently settled in CNY. However, the
agreement is likely to promote future trade transactions to be
settled in CNY and the ability to directly transfer between AUD and
CNY will reduce transaction and hedging costs associated with
additional currency transfers for Australian and Chinese
Consideration of these factors may be necessary at the
negotiation and drafting stage of contracts for the sale of goods
or services between Australian and Chinese businesses going
The mechanism created through this agreement will also support
the rise of the CNY as a dominant currency in the Asian region.
Since 2010, the percentage of international trade transactions
settling in CNY has risen from 2% to 12% and the Chinese Government
has set a target of 30% by 2015.
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