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[SYDNEY] Sydney, Australia's largest city, is set to become the latest hub for trading China's yuan currency, with the Chinese and Australian authorities expected to ink the agreement this month.
The deal would see Sydney join Seoul, Paris, Luxembourg, London, Frankfurt, Singapore and Hong Long as one of the global centres for trading the yuan, or renminbi, and bolsters China's efforts to promote the use of its currency in international trade.
China is Australia's single biggest export market with two-way trade flows of around A$150 billion (US$131 billion) in 2013. However, only about 1 per cent is conducted in renminbi. "It will take time to change that but maybe within five years, we could see the ratio double," said Anthony Issa, deputy treasurer at Industrial and Commercial Bank of China (ICBC).
The People's Bank of China is highly likely to appoint a clearing bank later in November, said Issa, a key step towards .
Sources familiar with the situation said five Chinese banks, namely Bank of China, ICBC, China Construction Bank Corp and Bank of Communications and Agricultural Bank of China were vying for the role.
The appointment would make it easier for investors to complete financial transactions, while lowering the cost of doing business for importers and exporters.
Instead of paying foreign exchange fees in Australian dollar-US dollar-renminbi, the agreement would reduce the costs to Australian dollar-renminbi.
Issa said the agreement would help expand the range of financial products including bonds, foreign exchange and equities.
Australia still lags its global competitors in adopting the"redback", despite an early start in 2013 when a private sector-led initiative kicked off with the aim of expanding yuan business in the country.
Australian borrowers have recently started to issue yuan-denominated bonds with securities listed on the Australian stock exchange but cleared in Europe or Asia.
Earlier this year, a portion of the massive US$7.8 billion loan for Australia's Roy Hill iron ore project was funded in yuan.
China's thirst for minerals has fuelled more than 20 years of unbroken economic growth in Australia. The two countries are aiming to sign a bilateral free trade agreement by the end of the year.