N.Z., China May Allow Direct Currency Conversion for Trade

May 27 – New Zealand and China are in talks about making their currencies directly convertible, aiming to reduce costs as trade between the two countries is targeted to surge 33 percent in the next two years.

The talks were initiated during New Zealand Prime Minister John Key’s visit to China last month, his spokeswoman Lesley Hamilton said by telephone yesterday, confirming an earlier report in the Wall Street Journal. The negotiations are in an early stage and are progressing without a specific timeframe, she said.

New Zealand’s exports to China jumped 32 percent in the first quarter, surpassing shipments to Australia for the first time, led by dairy products, logs and meat. The currency talks are underway as New Zealand targets NZ$20 billion ($16.2 billion) in two-way annual trade with China by 2015 from about NZ$15.2 billion in the year ended March.

“By having direct convertibility, that would reduce the transaction cost of doing business with China,” said Jane Turner, economist at ASB Bank Ltd. in Auckland. “It reduces the cost of hedging and the risk of currencies moving against you, and you can become more competitive in your pricing.”

The People’s Bank of China today raised the daily yuan fixing to 6.1811 per dollar, the strongest level since a peg ended in July 2005. The currency fell 0.09 percent to 6.1274 per dollar at 12:52 p.m. in Shanghai. The New Zealand dollar fell to 80.77 U.S. cents at 4:52 p.m. in Wellington.
Overtaking Australia

New Zealand’s sales to China amounted to NZ$2.31 billion in the three months ended March 31, Statistics New Zealand said in an April 26 report. Exports to Australia fell 7.3 percent to NZ$2.17 billion, the lowest since early 2008 and the first calendar quarter it fell behind China.

New Zealand became the first developed nation to sign a free-trade agreement with China in 2008. In the 12 months through March, exports rose 25 percent to NZ$7.41 billion, still lagging behind NZ$9.74 billion of shipments to Australia.

“We’re looking for as fast an outcome as we can get,” New Zealand Prime Minister John Key told reporters in Wellington today. “The indications I got from the Chinese side were that it was possible for us to do it quite quickly.”

Direct trading between the yuan and the Australian dollar began last month, making the Aussie the third currency to be directly convertible with China’s, following the U.S. dollar and the Japanese yen. Direct trading means the fixing will be computed without involving a cross rate with the dollar.

China’s yuan was the 13th most-used currency in global payments in April, according to the Society for Worldwide Interbank Financial Telecommunication. Its share of global payments rose to a record 0.74 percent in March, according to figures from the financial messaging platform.

Source:Bloomberg