The Canadian RMB Trading Centre: A Small Step in the Long Road of China’s Peaceful Rise in International Financial Markets

Abstract

China is on the road to becoming a powerful force in global financial markets; statistics suggest that already some 20 per cent of the world’s trade finance is currently conducted in the country’s currency — the yuan, or renminbi (RMB). That is a twentyfold increase in just five years. Canada has shrewdly connected its own financial system to that of China’s, well before many other countries, in securing permission from China to host one of the world’s few renminbi trading hubs. The creation of these trading hubs is an important milestone for China in the long process of the internationalization of its currency. Hosting such a hub is an important milestone for Canada, in that it can help further the increase in bilateral trade and investment, the expanding exchange of businesspeople and students, and the official presence on the ground on the part of both countries’ governments. A key benefit of the creation of an RMB trading centre in Canada is that it will enable Canadian financial institutions to develop a capacity to trade, and an expertise in trading, Chinese currency for non-Chinese financial instruments (such as stocks, bonds, etc.), and converting Canadian currency into Chinese investments. While this may seem straightforward, given the fact that so many different currencies are exchanged freely on global markets each day, the renminbi is unique in the fact that it has been a highly controlled, largely inaccessible currency. That has historically hampered its liquidity and added much more risk than is the case with other major currencies. Canada’s RMB trading hub will reduce those difficulties and risks. Just as significant, however, is the symbolism of Canada’s new hub (which, really, is just a virtual hub, comprised of computer systems, rather than a physical office or trading floor). The designation of Canada as host to an RMB centre — one of just nine in the world, and the only one in North America — was the result of several years of co-ordinated and co-operative advocacy on the part of Canadian businesses and governments who recognized its future importance. And it is a more important step forward in Canada-China bilateral relations than it has perhaps been given credit for. As China marches towards internationalization and liberalization, Canada has positioned itself well as an early partner in that progress. The RMB trading centre might be just a small step, but it is a vital one, in ensuring that Canada remains closer to, and more connected to, China as it emerges as a powerful global force in the world’s financial markets.