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Australia seeks direct settlement of trade

By Chen Yang (Global Times)

08:46, July 12, 2012

Australian Treasurer Wayne Swan said Wednesday that he will discuss with Chinese officials the potential for direct conversion of the Australian dollar and the yuan, a move to expand the use of the Chinese yuan in cross-border trade and investment.

"This has the potential over time to help reduce the cost of trade between Australia and China," Swan said at a forum held in Hong Kong before heading to Beijing on Thursday for a three-day visit. But he did not give a timetable.

Currently Australian businesses trading with China must first convert the Australian dollar to the US dollar to finalize payments.

"For Australian and Chinese businesses, dealing in the yuan will reduce their transaction costs and financial risks brought by fluctuations in the US dollar, a move that could boost cross-border trade volumes," Liu Ligang, chief China economist at Australia & New Zealand Banking Group, told the Global Times Wednesday.

China is the biggest buyer of Australian commodities such as iron ore. In 2011, the bilateral trade between the two reached $120 billion.

To secure liquidity for traders, Australia's central bank signed a A$30 billion ($30.61 billion) bilateral currency swap agreement with China's central bank in March.

Liu said after the direct conversion is implemented, Australian exporters are more likely to use the yuan to settle cross-border trade with Chinese buyers, and the broader use of the yuan will help the internationalization of the Chinese currency.

"Allowing direct trading of the yuan against currencies of China's major trading partners is a safer way to facilitate the yuan to become a global currency, compared with lifting controls on the capital account," Liu said.

If the deal is finalized, the Australian dollar will become the third currency after the US dollar and Japanese yen to be traded directly against the yuan.

China and Japan started direct currency trading on June 1, a move expected to save about $3 billion in annual costs tied to using the US dollar in trade transactions, according to earlier media reports.

"So far in real practice, the effect of the direct trading has not been as optimistic as authorities expected. It has not helped Chinese importers and exporters to save much cost," said Liu Dongliang, a currency analyst at China Merchants Bank.

Meanwhile, Australia also aims to establish an offshore yuan market in Sydney, the South China Morning Post reported in June. However, some experts said China should be cautious in promoting the yuan's internationalization.

"The direct conversion will bring benefits to Australian exporters but risks to China, as the country's currency system and foreign exchange market are still not well regulated," Tan Yaling, head of the China Forex Investment Research Institute, told the Global Times Wednesday.

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