Canada Hub Aims to Boost Deals
in China Currency
Canada’s launch of a trading hub Monday will make it easier for companies in the Western Hemisphere to do business in Chinese currency, part of a larger effort to boost trade with the world’s second-largest economy and give its money an expanded role on the world stage.
China’s central bank is backing the new Renminbi Trading Hub for the Americas, which will allow firms in numerous countries to conduct their renminbi transactions through Canadian banks.
The system is expected to save companies time and fees while creating new revenue for the Canadian financial institutions that act as hub gatekeepers. Industrial and Commercial Bank of China’s Canadian subsidiary will clear the transactions.
The launch of this hub, like others in Singapore and London, is part of China’s push to promote greater use of its currency in global trade and investment.
The renminbi, also known as the yuan, became the fifth-most-used currency in the world in November 2014, after surpassing the Canadian and Australian dollar, according to the Society for Worldwide Interbank Financial Telecommunication network. That compares with a 13th- place ranking about two years ago.
For Canada, the hub is expected to further boost trade with China as it seeks to diversify from its heavy dependence on the U.S. China is already Canada’s second-largest trading partner.
“A hub is a very strong signal to the Chinese government that Canada is eager to align itself with China’s continuing market liberalization,” said Jason Henderson, head of global banking and markets at HSBC Bank Canada.
The Canadian effort took two years and was a collective push by banks, insurers and TMX Group Ltd., which operates Canada’s flagship stock exchange. There has been some talk of creating a U.S.-based hub in San Francisco or New York.
“It gives us as Canadians, and to a greater scale all of those in the Americas, the ability to deal through this hub to be able to access the currency,” said C.J. Gavsie, head of foreign-exchange products at Bank of Montreal’s capital-markets unit.
Since the hub is pan-Canadian, its benefits will be felt across the country, said Janet Ecker, president and CEO of the Toronto Financial Services Alliance.
For instance, renminbi-based trade finance deals could take place in Vancouver, energy deals in Calgary and derivatives in Montreal, she said.
U.S. banks seeking to take advantage of the Canadian hub on behalf of their commercial clients will need to do so through a Canada-based lender and likely for a fee. William Zhu,president and CEO of ICBC’s Canadian subsidiary estimates that about 17% of U.S. import-export companies that are doing business with China are already using the Renminbi.
The hub should also act as a catalyst for more businesses in Canada and the U.S to use Renminbi-based accounts. That means companies can pay their Chinese counterparts in Renminbi on a same-day basis.
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