A staff (R) passes Chinese Renminbi notes to a customer at a bank in Jinan, east China's Shandong province. REUTERS/Stringer/Files (CHINA) CHINA OUTSTRINGER SHANGHAI/Reuters
'Hub" sounds like a precise place, the centre part of a wheel. The Canadian renminbi hub won't be so tangible. But it will make this country much more of a "centre" for trade with China in the Western Hemisphere. Thanks to an agreement reached with China on Saturday, Canada will soon be such a hub.
Once the hub is up and working, Canadian and Chinese companies will not have to pay each other in some other currency. Intermediaries will be cut out. The central banks of China and Canada will back these transactions in a "swap line," to make sure there is enough of each currency – up to $30-billion (Canadian) or 200-billion RMB. And Canadians can have Canadian bank accounts in RMB – for institutional investors, up to 50-billion RMB.
Not surprisingly, Chinese firms like to deal in RMB. Convenience is a many-splendoured thing. Some countries with such hubs see that their trade with China has doubled or tripled in a couple of years – no doubt those numbers will vary. Already, China is Canada's second-largest trading partner, though still well behind the United States.
For some years, China supported its exports by undervaluing the RMB, causing serious problems to the U.S. and other developed economies. That may not be true now (some say it's even overvalued). But it's very much in the interest of the world economy for China to be a normal participant in international commerce, with full convertibility of the renminbi – and not just in so-called hubs, but everywhere.
The new deal is good for Canadian business, and a step in the right direction for China.