Australia to Bypass US Dollar in Trade with China

While the US Dollar may still be the best of the fiat currencies, another development this week may indicate that the clock is ticking on the US Dollar’s reign as the world reserve currency.  Australia and China reached a trade agreement that would allow Australian Dollars to be directly converted into Chinese Renminbi, eliminating the need to convert the Australian Dollar to US Dollars when trading with China.[i] This from the Australian news source “” (emphasis added):

WESTPAC and ANZ banks will be the first to directly trade Australian dollars into Chinese yuan under a landmark currency deal that will begin on Wednesday.

On a visit to China’s financial capital of Shanghai, Prime Minister Julia Gillard said it was the next important step in economic relations.

“This is a strategic step forward for Australia as we add to our economic engagement with China,” the PM said.

“This is a huge advantage for Australia. Not only for our big businesses but also for our small and medium enterprises that want to do business here.”

“All of This is about growing our economic exchange between australia and china . That’s good for Austraian jobs, good for Australian growth.”

ANZ and Westpac have been granted licences by the People’s Bank of China for direct trading.

Westpac chief executive Gail Kelly and ANZ boss Mike Smith, in Shanghai for the announcement, said they were delighted.

“This takes cost out and makes it a whole lot more convenient,” Ms Kelly said.

“This is a strategic development and really does signal a deepening of relationships between China and between Australia, it signals deepening of trade connections and great opportunities for future growth.”

Mr Smith said it would make trade documents far simpler for business by cutting out the complexity of needing to convert first to US dollars.

“On behalf of ANZ as Australia’s largest bank in China we are delighted with this development,” Mr Smith said.

“It’s another step in the progress towards deeper ties between both countries in terms of the economic and business development.”

Ms Kelly said it was a great opportunity for Westpac customers.

Ms Gillard calmed concerns it could push up the value of the already high Australian dollar.

“It won’t have an impact on the level of the dollar,” she said.

Under the deal, the Australian dollar will for the first time be directly convertible into Chinese yuan, without going through the US dollar as happens now.

Australia will have the third currency in the world that can be directly traded, after the US dollar and the Japanese yen.

While I believe the US Dollar will continue to enjoy reserve currency status for quite some time, the shift is beginning with more direct trade agreements being implemented.  The Australia and China agreement is likely just the first of many.

[i] Phillip Hudson.  “Australia and China reach a currency trading agreement.” April 8, 2013.

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