The Bank of Montreal completed the first-ever renminbi trade in
North America in the new yuan clearing house last month in Toronto.
The Canadian clearing house now allows the direct conversion of
Canadian dollars into renminbi without having to first convert into
The trading hub officially opened contemporaneously with the
publication of a survey by HSBC showing that Canadian companies are
the second least likely to use the renminbi for their trade
settlements with mainland China. Only three per cent of Canadian
business have concluded renminbi-denominated trades compared with a
rate of 17 per cent globally and 10 per cent in the United States.
Countries in Asia continue to drive much of the usage of renminbi
even though it's now one of the world's five most-used
The opening of the renminbi trading hub in Toronto is another
step towards greater access by Canadian companies to the Chinese
market. Alongside the new 10-year visa officially announced earlier
this year, the signing of the Canada and China Foreign Investment
Promotion and Protection Agreement last year, and the ongoing
negotiations for the Trans-Pacific Partnership agreement with
neighbouring countries, the opening of the trading hub illustrates
the Canadian government's focus on promoting trade with the
world's second-largest economy and East Asia generally by
facilitating the movement of funds, people, and goods.
The benefits of the renminbi trading hub to Canadian businesses
Price discounts from Chinese partners for transactions settled
in Chinese currency: Another HSBC study found that 55 per cent of
Chinese businesses said they would offer discounts of up to five
per cent to foreign partners transacting in renminbi, making
Canadian exports more competitive on the Chinese market.
Reduced foreign exchange risk: Companies can now settle
transactions in renminbi without having to convert to U.S. currency
first, thus reducing for exchange risk linked to fluctuations in
the U.S. dollar.
Increase in Chinese exports to Canada: Chinese products will
benefit from reduced foreign exchange conversion fees and become
more attractive to Canadian importers and consumers. The savings
for Canadian companies importing goods from China are estimated at
$6.2 billion over the next decade.
Increase in Canadian exports to China: The Canadian Chamber of
Commerce estimates exports will grow by $32 billion within the next
10 years as a result of renminbi-denominated trades.
Opportunities for the financial industry in Canada: As the only
trading hub in the Americas for now, the Canadian financial
industry can benefit from first mover-advantage to target clients
who want to effect trades in renminbi.
The advantage of the Canadian yuan trading hub will only last a
few years as China continues to liberalize its financial system and
allows more domestic business to access foreign currencies.
Canadian businesses should use this new advantage to continue
building links with Chinese partners to fully utilize their
first-mover advantage of settling transactions in renminbi.
All told, the past year has seen significant beneficial policies
implemented to facilitate access to the Chinese market by Canadian
businesses. Canadian businesses should use these new tools to their
advantage to grow their presence in the Chinese market and gain a
foothold in this growing economy.
This articles was originally published by The Law Times on
April 27, 2015.
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