What a Chinese currency hub means for Vancouver

And how will allowing for local settlement of the renminbi change the nature of B.C.’s (and Canada’s) trade with China?

Last November, the federal, B.C. and Chinese governments announced the first Americas-based hub for trading Chinese currency, to be established in Vancouver. It was a historic breakthrough, given that until 2009, the Chinese government prohibited the use of its renminbi (RMB) in international transactions, with companies doing trade with Chinese firms typically doing so in U.S. dollars. Canada will eventually join just a handful of countries—Russia, Sri Lanka, Vietnam, Thailand, Japan and Australia—that will be able to directly settle transactions in renminbi.

HSBC Canada’s chief economist David Watt says the hub will lower a key hurdle for companies in both Canada and China to trade with each other. “By providing access to trade settlement in renminbi, it opens up the door to other trading partners who may not be big enough to have access to U.S. dollars,” Watt explains. “It creates an opportunity to access a range of potential export or trade partners that we didn’t have before.”

The hub should also help expand trade beyond traditional goods and into financial products services. Canadian institutions such as pension funds, for example, will for the first time have the ability to buy up to 50 billion yuan ($9.2 billion CDN) in Chinese stocks and bonds directly. “It means that we will be developing products such as savings vehicles or hedging vehicles, and it will create more liquidity for trading the Canadian dollar,” says Watt.

AdvantageBC’s president and CEO Colin Hansen has been working to solidify Vancouver as a key financial centre for trade with China. To him, the hub goes beyond lowering costs for Canadian companies. “It is not just a currency mechanism to service Canada because you can also, through this Canadian pipeline, do any currency in the world directly into and from renminbi,” explains Hansen. “So you can do U.S. dollar to renminbi. You can do Mexican peso to renminbi through the Canadian hub or you can do the Brazilian real directly.”

For Brazil—the ninth-leading exporter to China—and other countries in the Americas, settling trade through the Vancouver hub would allow them to conduct business without the inconvenience of dealing with an Asian time zone. For Hansen, that makes this bigger than a China-Canada trade story and puts Vancouver firmly on the world stage. “It’s a real opportunity for Canada to become a financial services gateway between the Americas and China.”

PLUS: You’re invited to the BCBusiness “Doing Business in China” breakfast on October 27 at the Rosewood Hotel Georgia in Vancouver, sponsored by HSBC. events@bcbusiness.ca