The renminbi (RMB) clearing bank in Canada, ICBC Canada, was officially launched in Toronto on Monday evening. This is the first RMB trading hub in North America and in the western hemisphere.
The hub is the latest step in a Canada-China relationship now worth 78 billion Canadian dollars in two-way trade, according to Canada’s statistics.
Canada’s Finance Minister Joe Oliver and Chinese Ambassador to Canada Luo Zhaohui inaugurated the trading hub at an event in Toronto hosted by the Industrial and Commercial Bank of China (ICBC).
ICBC Canada or simply ICBK was designated as the RMB clearing bank in Toronto, according to an announcement made by the People’s Bank of China on Nov. 9, 2014.
“Today’s announcement of the launching of a renminbi hub reinforces the strength of our ties,” said Oliver at the grand ceremony held in downtown Toronto’s metro convention centre.
“Through lower transaction costs, it is now easier for Canadian firms to trade with and do business in China. This will mean jobs, growth, and long-term prosperity for Canadians, and a brighter future for both our great countries,” said the finance minister.
The Canadian Chamber of Commerce has estimated the hub could boost Canada’s exports to China by as much as 32 billion Canadian dollars. Currently, Canadian companies buying and selling in China have to convert the funds used to finance those deals into an intermediary, usually U.S. dollars, an extra step that adds costs and a layer of complexity.
During the ceremony, ICBC’s Vice President Gu Shu, stated that the bank would fully utilize Canada’s geographic and multiple time-zone advantages in support of the 24/7 RMB clearing system.
For example, Gu said, ICBK will take over and continuously provide RMB clearing services when the Headquarter and Singapore Branch capital market are closed.
ICBK has established two RMB clearing teams in Toronto and Vancouver, between which there is a three hour time difference, so that the Vancouver center can extend the RMB trading hours for three hours after the Toronto market is closed, according to the vice president.
Toronto and Vancouver had been rivals for the designation, which has previously been assigned to a city, not a country. British Columbia has the most trade with China, but Ontario is the heart of the financial services industry.
“This is important … in terms of improving our competitiveness for Toronto, for Ontario, for Canada,” Ontario Finance Minister Charles Sousa said at the launch. “Using Toronto as the platform, as the go-between, is critical – not only to our brand, but it also speaks to the prominence of our financial sector here in Canada,” Sousa said.
“Having a Canadian renminbi hub will enable British Columbia businesses to take advantage of the benefits that flow from doing RMB-denominated transactions. This is an exciting opportunity for British Columbia and we are dedicated to ensuring the success of this pan-Canadian initiative,” British Columbia Minister of Finance Michael de Jong said in a statement.
China’s bank had already designated other cities around the globe, including Singapore, London, Frankfurt and Seoul, as offshore trading hubs.
The Canadian hub is likely to attract business from Central and South America, as well as the U.S. and Canada, analysts predicted.
“China is Canada’s second largest trading partner. The establishment of the RMB offshore center will make it easier for Canadian businesses to settle in RMB and, as a result, we can expect growing trading volumes in RMB-denominated assets,”Domenico Lombardi, a lead researcher from Canadian think-tank CIGI, reported. Time will tell if this means anything, Canada has a love hate relationship with China, love your money hate your politics. what may be seen as a sweet heart deal may well end in divorce.
Written by Cristoph De Caermichael