TORONTO - Canada's Chinese currency trading hub, which officially launches Monday, is meant to reduce costs for Canadian companies and increase trade between the two countries.
Here are five things you should know about the first renminbi, or yuan, trading hub in North America:
— The Chinese currency has surpassed the Canadian and Australian dollars to become the fifth most frequently used currency in international payment , according to data from the Society for Worldwide Interbank Financial Telecommunication.
— The trading hub doesn't convert directly between the Canadian dollar and the renminbi. The hub will convert Canadian dollars to U.S. dollars before converting them to renminbi. After the hub has been up and running for some time, Chinese and Canadian authorities could sign a secondary agreement that will allow for direct conversion.
— By allowing for faster, more secure conversions into China's currency, the virtual trading hub will allow Canadian exporters to save on exchange costs. A number of countries in Asia and Europe are already doing business using the renminbi, including Singapore, Britain, Germany and Australia.
— The renminbi has been fluctuating in value and those fluctuations are likely to make Chinese importers more interested in paying in renminbi, rather than U.S. dollars.
— There is a limited amount of time for Canadian companies to benefit from the trading hub's competitive advantage. Currently, it is difficult to get capital in and out of China. However, China is expected to liberalize its financial system in about three to five years.
"Once that happens, dealing with China will be like dealing with any other open economy," said Daniel Koldyk, a researcher with EDC.
"Canadian companies should be taking full advantage of the hub now and gaining a foothold, learning how the business works, so that when China's capital account swings fully open, they will have already been doing it. They will already have the experience, confidence and relationships built."