Australian businesses are increasingly settling their Chinese trade with the local currency rather than US dollars, as the world's second-biggest economy and Australia's biggest trading partner seeks to boost the yuan's global clout.
Payments sent and received from Australia in yuan rose by more than 200 per cent between August and November last year, according to an article published yesterday in trade journal Asiamoney. Outside China and Hong Kong, Australian firms are now the fourth-biggest users of yuan-denominated payments in settling global trade transactions, up from 9th in November 2011 and 12th a year before that.
Steve Kelly, head of renminbi sales and product at ANZ, told The Australian Chinese firms were demanding their invoices with Australian buyers be settled in renminbi, or yuan, rather than in US dollars.
Mr Kelly said the value of yuan-denominated payments had risen more than 17 times since late 2010, while the value of payments with other countries remained broadly flat.
"For Chinese firms, domestically denominated invoices reduce their foreign exchange risk" he said, pointing out Australian buyers could benefit, too, if they could negotiate to share some of the lower foreign exchange risk Chinese sellers are enjoying from using their own currency.
"Many Chinese suppliers are acting to lock in existing prices, though; there's lots of bargaining going on behind the scenes as Australian buyers try to negotiate better price during the transition," Mr Kelly said.
Up to 15 per cent of Chinese cross-border trade is settled in the yuan, and the People's Bank of China has announced a target of at least 30 per cent by 2015.
Richard Grace, chief currency strategist at Commonwealth Bank, told The Australian a full float of the Chinese currency was ultimately likely, but "the Chinese government is taking baby steps towards a full float of the renminbi in order to educate Chinese businesses about dealing with foreign exchange risk".
Although Australian imports from China are increasingly settled in yuan, Australian exporters typically receive US dollars to settle invoices with Chinese buyers. "But they are increasingly able to invoice their sales in renminbi, which is particularly useful selling to smaller Chinese firms who would not otherwise have access to US dollars" he said.
Despite its rapid spread, the Chinese currency comprises less than 0.6 per cent of global trade transactions compared to 31 per cent for the US dollar and 2.4 per cent for the Australian dollar.
