Australia seeks direct yuan conversion, a threat to US dollar's dominance

Australia plans to work with China to allow direct conversion between the Australian dollar and the yuan, which would make it the third country to have such a bilateral currency arrangement.

The move is designed to help the Sino-Australian commodities trade and would pose a fresh challenge to the world dominance of the US dollar.

It comes just two weeks after the South China Morning Post reported that Australia was in talks with Hong Kong and Beijing about establishing an offshore yuan market in Sydney to serve the demands of growing Sino-Australia trade.

China is Australia's biggest two-way trading partner.

In June, Beijing announced a plan for direct conversion of the yuan and the yen, making the Japanese currency the second after the US dollar for which direct conversion into yuan is permitted.

Wayne Swan (pictured), Australia's deputy prime minister and treasurer, told a Hong Kong forum yesterday that he would discuss a range of yuan-related matters with officials in Hong Kong, already the leading offshore yuan centre, and his counterparts in Beijing. London and Singapore also plan to launch their own yuan trading centres.

'This [discussion] will include the potential for direct convertibility at some stage in the future between the Australian dollar and the RMB for transactions completed in mainland China, without pricing through the US dollar,' said Swan. The yuan is also known as renminbi, or RMB, which literally means 'people's money'. Swan is due to visit Beijing today.