China is making it easier to buy and sell its currency in order to expand trade and investment opportunities for the world’s second largest national economy.
China has taken gradual steps to free up trade in the renminbi (RMB), also known as the yuan (CNY).
Before 2006, it was pegged at a fixed rate to the US dollar but it now trades directly with seven currencies, in a range of two per cent either side of the official rate set by the Chinese central bank.
The US dollar and the Japanese yen were the first and Australian dollar started direct trade early last year.
The latest addition to the renminbi club was the British pound last week, and the first in Western Europe.
Before that happened, someone with British pounds could not directly buy the Chinese currency, and instead had to buy a another currency like the US dollar to then buy renminbi.
HSBC head of RMB internationalisation Vina Cheung said direct trade lowers transaction costs and simplifies foreign exchange transactions.
“The direct trading between the pound and the CNY definitely has a very positive impact on RMB internationalisation,” she said.
“RMB is gradually becoming a more market driven currency and expansion of the trading bands is in line with the strategic direction by the Chinese governments to be more market driven.”
Ms Cheung said the Chinese government is also looking for more direct access with other currencies and said she is not surprised by the high level international demand for the renminbi.
In September last year, it joined ranks of world’s most traded currencies, coming in at ninth compared to 17th in 2010, according to the Bank of International Settlements.
Trading between the renminbi and the Australian dollar has increased more than seven-fold in its first year of direct exchange.
Ms Cheung said many countries are now using the renminbi as a reserve currency – one that is held in significant quantities by governments and institutions as part of their foreign exchange reserves.
The Australian dollar currently buys 5.83 yuan – the primary unit of the renminbi, up from 5.6 yuan a year ago.
The US dollar is worth 6.23 yuan, up from 6.21 a year ago.