Ottawa nears deal to become trading hub for yuan

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The Canadian business establishment expects Ottawa to soon consummate a deal with Beijing that would foster far easier trade between the loonie and China's currency.

"There's a high likelihood" an agreement toward building a settlement hub for the yuan, also called the renminbi, will be struck in early November, said Neil Tait, a former long-time banking executive in China who is now vice-chair of the Canada-China Business Council.

"If it doesn't happen, there will be many of us disappointed," said Mr. Tait, who has been among those most committed to the idea.

Official talks toward creation of a Canadian settlement hub for the yuan have been ongoing for months, and have involved multiple meetings between the department of finance and the People's Bank of China, Mr. Tait said. The basic structure of a deal, which would likely include initial establishment of a $30-billion swap line, appears to have been worked out, he said.

It's not clear whether a deal has been formally concluded, and political issues may yet block its completion. But a Bay Street source said Sino-Canadian talks on the matter are going well and there has been no word of anything that would stop a deal being reached.

China has invited Stephen Harper to a bilateral meeting with its top leadership in the days before an Asia-Pacific Economic Co-operation summit scheduled for Nov. 10-11. Mr. Harper has confirmed his attendance at the summit, but not yet at the bilateral meeting, amid continuing uncertainty over the fate of two Canadians still detained on suspicion of stealing Chinese military and defence research secrets.

If Mr. Harper declines the invitation, it would be considered a snub and damage relations with China, observers have warned. That could in turn affect what is largely a political decision on whether China will allow Canadian banks new abilities to trade its currency.

Despite the uncertainty over the Harper visit, advance teams from Ottawa have flown to Beijing to begin planning a Harper visit, and Canadian diplomats say a ceremonial signing on a yuan hub would be a key "deliverable" for the prime minister to announce – if a deal can be reached.

The announcement could be as simple as an agreement in principle to move forward on the hub, or something more substantial with more of the details worked out.

"We're optimistic," said Janet Ecker, the president of the Toronto Financial Services Alliance, which has led some of the industry lobbying efforts. "But at the same time, we recognize there are a lot of different issues on the table that might impact this. So, fingers crossed but not counting any chickens yet."

Some 10 other places have already been designated yuan settlement hubs, including London, Hong Kong, Frankfurt and Sydney. Such a step typically involves the initial creation of a swap line, which creates a guaranteed availability of exchange funds that can be used in an emergency. That is typically followed by a direct connection to a major Chinese clearing bank, and allows a more free exchange between local currency and the yuan.

For Canada, that would obviate the current need to first convert through greenbacks before buying yuan; that savings along could be worth $2.75-billion over 10 years on imports, according to calculations by the Canadian Chamber of Commerce. It could also unleash an additional $21-billion to $32-billion in exports, the chamber forecast.

The idea has garnered the attention of the highest levels of the Canadian government. In Beijing this week, Finance Minister Joe Oliver met with Lou Jiwei, his Chinese counterpart, and Zhou Xiaochuan, governor of the People's Bank of China.

Mr. Oliver offered few details on the state of talks, however. "There have been some conversations that have occurred at the officials level," he said. "We understand some of the potential advantages for Canada, which does a lot of trade with China."

Colin Hansen, the president of the AdvantageBC group that has also pushed for a yuan settlement hub, cautioned that "these negotiations can sometimes be rather complex." Vancouver and Toronto have abandoned an initial competition to host the hub, and are now instead pushing for a pan-Canadian model.

Such a designation can, however, take years to fully bring into being. "There is, I gather, some fairly complex computer systems that get put in place to facilitate all of these transactions," Mr. Hansen said.

The People's Bank of China did not answer multiple attempts to ask for comment.

For Canada, creation of a yuan settlement hub would form a victory of sorts against the U.S., making it the only such place in the Americas.

"That puts us on the map as a world-class international financial centre," said Mr. Tait.