The Reserve Bank of Australia (RBA) has signed an $AU30 billion bilateral local currency swap agreement with the People’s Bank of China (PBC).
An indication that Australia and China’s economic future is becoming increasingly linked, the agreement was signed in Beijing yesterday at a ceremony involving PBC Governor Zhou Xiaochuan and RBA Governor Glenn Stevens.
“It is for an initial period of three years and can be activated by either party,” the RBA said in a statement.
“The agreement allows for the exchange of local currencies between the two central banks of up to AU$30 billion or CNY200 billion,” says the RBA.
“The main purposes of the swap agreement are to support trade and investment between Australia and China, particularly in local currency terms, and to strengthen bilateral financial co-operation. The agreement reflects the increasing opportunities available to settle trade between the two countries in Chinese renminbi (RMB) and to make RMB-denominated investments. It follows the decision by the Chinese authorities last November to allow convertibility between Australian dollars and Chinese yuan in the interbank market in China,” the RBA says in a statement.
Australian Treasurer Wayne Swan says it is an important symbolic step towards the “internationalisation” of the Chinese currency.
It was “another milestone in the continued deepening of the economic relationship between Australia and China,” Swan told reporters.
“According to the Chinese Customs, Sino-Australian total trade flow increased 32.4% in 2011, reaching $US116.6 billion. Despite the rapid growth in bilateral trade flows, most trade activity between the two countries is settled in USD. This means the size of the bilateral swap agreement is small relative to the size of bilateral trade,” says Li-Gang Liu, head of Greater China Economics at ANZ Research.
“Nevertheless, this agreement will provide a jump start to RMB trade invoicing business between China and Australia.”
US politicians have long criticised the Chinese government for artificially holding down the value of its currency – giving the country an unfair advantage in manufacturing.