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Treasurer Joe Hockey says Zhou Xiaochuan is personally backing efforts to develop a yuan trading centre in Australia. Photo: Nora Tam

New | Sydney moves ahead with yuan trading, with People's Bank of China backing

Central bank governor Zhou Xiaochuan shows support for Sydney's yuan trading hub bid as currency deregulation drive picks up speed

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People's Bank of China governor Zhou Xiaochuan is personally backing efforts to develop a yuan trading centre in Australia, Treasurer Joe Hockey told the on Tuesday.

"Obviously if we can have a relationship on RMB trading like London or some other jurisdictions, that helps, but the trend is heading in the right direction. Governor Zhou has given me a personal assurance that if there is more that can be done to facilitate the growth, we'll work together to make it happen," he said, without elaborating.

Hockey made the comments after attending the signing ceremony for the newly established US$50 billion Asian Infrastructure Investment Bank (AIIB) in Beijing on Monday. Australia was the first foreign nation to sign up as a founding member of the China-led multilateral bank.

"China has come a very long way in a very short period of time in deregulating its currency and the West has not given China enough credit for how quickly it moved for such a massive economy," Hockey said.

Sydney is among the major cities around the world looking to become a yuan trading hub. The city was granted a clearing bank facility in February and a 50 billion yuan (HK$63 billion) investment quota under the RQFII (Renminbi Qualified Foreign Institutional Investor) scheme through which offshore investors can directly purchase mainland stocks and bonds.

Australia also renewed a currency swap agreement worth 200 billion yuan with China in April.

Cities like London, Singapore and Luxembourg are increasingly vying for a bigger slice of the offshore yuan business. Yuan trading volume in both London and Singapore more than doubled last year. Hong Kong, however, remains the largest offshore yuan centre.

Promoting the international use of the yuan as a trade settlement currency has been the core strategy of China's financial diplomacy since 2009, when it launched a pilot programme in Hong Kong to settle physical goods trade in yuan.

Hockey highlighted the just-concluded free trade agreement between China and Australia.

"It will be a free movement of people between the two countries. As a result of the free trade agreement, I see a substantial increase in person-to-person trade and in small-business-to-small-business trade. In this case, there will be great flow of money and the RMB/AUD trade will increase in volume," he said.

Last year, for the first time, China became the biggest foreign investor in Australia, with Chinese investment there totalling A$64.5 billion (HK$383.6 billion). Australia was the second-biggest destination for Chinese investments, after the United States.

Australia's imports from China grew by 10.2 per cent to A$52.1 billion while its exports to China fell by 4.9 per cent to A$90.1 billion.

The International Monetary Fund will this year review the yuan's eligibility to join the Special Drawing Rights, its reserve currency basket. To make it to this elite currency list, the yuan will have to win at least 70 per cent of the votes of IMF member countries. Australia has a 1.31 per cent voting right at the IMF.

"China is certainly doing everything it can to have the yuan qualified as part of the SDR currencies," Hockey said. "There is no shortage of willingness that I can detect from the Chinese leadership to move in the right direction in relation to the RMB."

The AIIB is expected to provide a massive boost to those ambitions as it underwrites infrastructure across the region that currently see a demand of about US$1 trillion a year.

China on Monday obtained a 30.34 per cent stake and the largest share of voting rights in the AIIB, giving it an effective veto in the institution.

"It is not uncommon in these international institutions for a large player involved in the set-up to have veto power. The US has one over the IMF, for example," he said.

This article appeared in the South China Morning Post print edition as: Sydney moves forward with yuan trading business
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