China and Australia sign $31bn currency exchange deal

Australia and China have signed a currency exchange agreement in an attempt to promote bilateral investment, reports the BBC.

It will allow local currencies up to the value of 30bn Australian dollars (£ 20bn) to be exchanged between their central banks over a three-year period. The agreement is expected to reduce businesses’ costs as they will be permitted to settle the terms of trading in local currency.

The move comes as the latest in a number of similar agreements signed by China as it puts its efforts into making the yuan more global. In a statement, the Reserve Bank of Australia said that the exchange agreement’s main purposes are to support investment and trade between the two countries, particularly in terms of local currency.

China has been attempting to promote its currency as an alternative reserve currency to the American dollar. It has agreed currency deals with many key trading partners, including Japan and Hong Kong. That has resulted in an increase in the amount of the country’s trade being settled in the local currency rather than the US dollar.

Analysts claimed the latest agreement with Australia, which is among the biggest suppliers of natural resources and minerals such as iron ore and coal to China, is a massive move forward in Beijing’s quest for its currency to play a major global role.

They also said that the currency swap deals would result in a slight opening up of the country’s tightly controlled capital markets because trade partners with these deals would have more possibilities to invest their funds in yuan-denominated assets.