[HONG KONG] The global journey of the Chinese currency is set to enter a new stage with the first yuan clearing bank in the Americas, to be launched in Canada soon, boding well for the growth of a yuan deposit pool and investor participation there.
Canada is expected to finalise the creation of a yuan clearing centre, sources familiar with the government's talks with Chinese officials told Reuters on Tuesday, following the set-up of the first yuan hub in the Middle East this week.
Toronto and Vancouver have been jostling to host it, but Toronto is believed to have edged past its West Coast rival in the race. An announcement will be made during Prime Minister Stephen Harper's trip to China later this week. "It's good for trade, it's good for business, so I'm very hopeful, we've been very supportive of the idea since it was first floated," Bank of Canada Governor Stephen Poloz said about possible yuan trading arrangements in the country.
A yuan clearing bank helps reduce transaction costs, facilitate trade settlement and reduce currency risk. It also attracts yuan funds to accumulate in a country and paves the way for more financial products denominated in the currency.
Canada is not new to the offshore yuan market. The province of British Columbia completed its second offshore yuan debt issuance worth 3 billion yuan (US$490.9 million) last Wednesday, which, similar to the first issuance last year, saw strong demand from central banks.
The high-quality bonds not only provide investors in the Americas with a channel for exposure to the Chinese currency, but helps the yuan gain more acceptance as a reserve currency by foreign governments and institutions.
Its neighbour has also seen yuan usage increasing thanks to its close trade relationship with China. Standard Chartered included New York's yuan business, such as foreign exchange turnover and international payments, in its Renminbi Globalisation Index at the beginning of the year to show its rising importance.
The United States' yuan payments increased by 327 per cent in April from a year earlier, ranking it third in the world in terms of yuan payments value, excluding China and Hong Kong, according to global transaction services organisation SWIFT.
No figures are available for Canada, but market participants believe the country is likely to have bigger potential in terms of becoming another offshore center, compared with the world's largest economy. "Canada has more potential in the short term as the US does not want the dominant status of its dollar to be challenged, which is what the Chinese currency is trying to achieve," said a Chinese asset manager in Hong Kong.
Beijing is stepping up efforts to promote its currency beyond Hong Kong by assigning clearing banks to more and more countries to facilitate trade transactions and investment denominated in the "redback".
In the past two years, a total of eight financial hubs have been granted yuan clearing banks, including Taiwan, Singapore, London, Frankfurt, Paris, Luxembourg, Seoul and Qatar.