Chinese, Canadian central banks agree to 200 bln yuan currency swap

By Andrea Hopkins
100 Yuan notes are seen in this illustration picture in Beijing November 5, 2013. REUTERS/Jason Lee

By Andrea Hopkins

BEIJING (Reuters) - The central banks of China and Canada have agreed to a currency swap worth 200 billion yuan ($32.67 billion) or C$30 billion, according to a Canadian government statement issued at a meeting of Asia Pacific nations on Saturday.

The swap will be effective for three years, according to a separate statement from China's central bank. The agreement was announced after Canadian Prime Minister Stephen Harper met Chinese Premier Li Keqiang.

China's central bank, the People's Bank of China, will also create a clearing hub for the yuan - or renminbi, as the currency is also called - in Toronto, the first such hub in the Americas.

The central bank said on Sunday that it would appoint the Canadian branch of the Industrial and Commercial Bank of China Ltd (ICBC) <601398.SS> <1398.HK>, China's largest commercial bank, as the hub's clearing bank.

The currency swap will help set up the clearing bank, and allow the two banks to swap currencies if needed to ease trade and investment. The yuan clearing bank would allow Canadian financial institutions to use the clearing bank to process payments for their customers in yuan.

The move is in line with Beijing's ambition to promote its currency to more international investors and eventually turn the "redback" into a global reserve currency, while at the same time expanding China's already considerable political and economic clout.

"This is a fantastic announcement for Canada and China relations, a terrific move for Canadian businesses to be able to compete more abroad, not only direct-to-China investment but ... as more RMB/CNY activity takes place around the world," said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.

China will additionally give Canadian investors the right to invest up to 50 billion yuan initially in China's capital markets. The quota will be granted under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme.

That programme, launched in 2011, allows financial institutions to use offshore yuan to invest in the mainland's securities markets, including in stocks, bonds and money market instruments.

(Additional reporting by Adam Rose and Ben Blanchard; Writing by Paul Carsten; Editing by Koh Gui Qing, Jeremy Laurence and Ian Geoghegan)