Direct exchange hub could smooth way for businessess doing deals in China
After stock markets closed on Monday, Toronto became the first trading hub in North America for China’s currency, known as the renminbi or yuan.
Chinese government dignitaries, Federal Finance Minister Joe Oliver and his Ontario compatriot Charles Sousa attended a ceremony in Toronto Monday evening to formally announce the first conversion from yuan to Canadian dollars.
The announcement makes Toronto the first such trading hub in the Americas that has permission to be a clearinghouse for Chinese renminbi (which means “people’s money” in Chinese). There are currently only a handful of such hubs outside China, including Paris, London, Moscow, Singapore, Tokyo, Seoul and Sydney, Australia.
In practical terms, such hubs make it easier to do business with China because without one, Chinese money has to first be converted into a currency like the U.S. dollar before being again converted into loonies to make investments here, or even pay for supplies.
“What the hub does is it provides the potential to get a good price,” says David Watt, the chief economist of HSBC. “It sets up a way for Canadian businesses to call their local banker and say “we’ve got a deal to import Chinese material and we’d like to pay for it in RMB not U.S. dollars.”
The hub eventually will allow people on both sides to take out that middle man and convert renminbi directly into Canadian dollars and vice versa. “It should give Canadian businesses the confidence to increase trade.”
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