SYDNEY, July 23 Australia is close to signing a deal with China that would allow the establishment of an official clearing bank for the renminbi, a step towards the more open flow of money and investment into and out of the Asian giant.
Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said the central bank was working with the People's Bank of China (PBOC) on a memorandum of understanding that would allow a clearing bank to be chosen "over coming months".
"Their key function is to facilitate cross-border payments and receipts of RMB for trade-related purposes on behalf of other financial institutions in the local market," Lowe told a seminar on the internationalisation of the renminbi (RMB).
Official clearing banks are afforded more direct access to China's onshore renminbi and foreign exchange markets than other offshore institutions, said Lowe.
They have direct access to China's interbank payments system and receive a quota to transact in the onshore foreign exchange market. These changes also entail more direct access to renminbi liquidity from the PBOC.
Setting up a clearing bank could lower transaction costs and reduce delays in payments for customers. China is Australia's single biggest export market with two-way trade flows of around A$150 billion ($141 billion) annually.
So far, less than 1 percent of Australia's merchandise trade with China is invoiced in renminbi, allowing plenty of scope for expansion.
Lowe said Australia also hoped to soon obtain a quota for Australian financial institutions to invest in mainland China under the Renminbi Qualified Foreign Institutional Investors scheme (RQFII).
Approved institutions can then invest their own quota in selected mainland Chinese bonds and equities using renminbi obtained in the offshore market.
"In this way, the RQFII scheme can be thought of as representing both a partial relaxation of controls on inward portfolio investment to mainland China and as a means of developing the offshore RMB market," said Lowe.
In June, China Construction Bank's branch in London was appointed as the first clearing bank outside Asia for the Chinese currency.
Earlier this month, Bank of Communications, China's fifth- largest commercial bank, got the nod for clearing in South Korea. (Reporting by Wayne Cole; Editing by Eric Meijer)