Canada Enhances Economic Ties with China

November 23, 2014

By Janaki Joshi

Rumors of the first yuan-clearing bank in North America have officially been confirmed this week. Developments are underway for a currency swap between Canada and China that will help set up a clearing bank. This yuan clearing bank will be the first in North America to process payments for customers in yuan. Canada will be the home of the yuan-clearing bank, which is said to be located in Toronto. China’s central bank, the People’s Bank of China, will create a clearing hub for the yuan. The currency swap would allow the two central banks to lend each other up to $200 billion yuan or $ 32 billion CAD, and will be effective for three years.

Canada and China have been strengthening their economic ties throughout the years. This September, Canada signed an investment deal with China, known as FIPA, which opens and increases investment between the two countries. Canada’s Minister of Finance, Joe Oliver, believes that the clearing hub will be an important development for Canada, as it will help accelerate increased trade.

The yuan-clearing bank would be beneficial to the Canadian economy, as it would reduce costs for Canadian firms that trade with China and increase future trade. Joe Oliver told reporters that the currency swap would reduce costs, increase trade, create employment and strengthen the ‘Canadian brand’. Stephen Harper commented on the upcoming yuan-clearing bank and stated that the trade agreement is worth more than $2.5 billion, as it is expected to create over 2,000 jobs in a wide variety of industries such as aerospace, infrastructure, mining, energy and agri-food.

China is currently the world’s second largest economy, and is also Canada’s second largest trading partner. The swap is beneficial for the Chinese economy as well− the move is in line with Beijing’s ambition to promote its currency to international investors. This arrangement will allow China to “turn the ‘rednack’ into a global reverse currency”, while at the same time help expand China’s political and economic influence.

The news of this most recent economic tie has been positively received in both countries. Canadian investors are thrilled with the positive move of business and the ability to compete abroad. China will provide increased opportunity for Canadian investors− and investors will have the right to invest up to 50 billion yuan in China’s capital markets. It seems that this arrangement will help strengthen ties between Canada and China, and help foster a growing economy for both countries.

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