Andy Seaman, partner and portfolio manager at Stratton Street says the recently concluded deal between Australia and China over currency convertibility points the way on international trade developments.
On Monday China and Australia agreed a deal to directly trade the Australian dollar and the renminbi. This means that rather than foreign exchange between the two countries going via US dollars, the currencies can be directly converted, something that previously was only possible with the dollar and the yen.
Initially the impact is likely to be limited as most of of Australian-Chinese trade is settled in US dollars (estimates suggest that less than 1% is settled in renminbi currently). However, the longer term implications should be very supportive for Australian companies that wish to lower transaction costs by settling trade in renminbi rather than US dollars. It is also another step towards further internationalisation of the renminbi.