A direct Australian dollar and China yuan currency conversion could very much augur well for a stable trade between the two growing economic leader nations.
The arrangement is but the "natural...yet critical next step" to boost ties with China, Australia's largest trading partner, Barry O'Farrell, premier of Australia's most populous state of New South Wales (NSW), said in a letter to Australian Treasurer Wayne Swan. Mr O'Farrell is bound for China on Wednesday. The NSW premier hopes to make the Aussie dollar the third currency directly convertible with the yuan.
"Full currency conversion with the yuan is critical to supporting and increasing trade and investment between NSW and China and to strengthen bilateral financial cooperation," he said.
"Sydney is also well placed to provide a base for yuan trade settlement for firms in the Asia Pacific seeking to do business in China."
About 60 per cent of Australia's exports of raw materials go to China, Asia's largest economy.
Direct conversion greatly lowers importation and exportation costs to and from China because the need to convert through an intermediary currency is already removed, in this case, the U.S. dollar.
Direct convertibility will likewise encourage more direct Chinese investment in Australia, particularly in the resources sector.
"There is enormous potential for our neighbours to look to Australia as an increasing supplier of the complex consumer durables and more sophisticated services that Asia's middle class will demand," a copy of the speech that Mr. Swan is due to deliver at a luncheon at the Australian Chamber of Commerce in Hong Kong on Wednesday said.
Paul Bloxham, chief economist of HSBC Australia, said the Aussie dollar and the Chinese yuan direct convertibility will greatly aid Australia as it diversifies its trade ties with China in the future, especially in the financial services sector.
"This is one step along the way," he said in MarketWatch.
"The Asian century for Australia is not going to be just about commodities; it's also going to be about financial services."
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