Yuan to trade with Australian dollar

China and Australia will start direct trading of the yuan and the Australian dollar Wednesday, making the Australian dollar the world's third currency directly convertible to yuan after the US dollar and the Japanese yen, Australian Prime Minister Julia Gillard said Monday.

Australia's ANZ Banking Group and Westpac Banking Corp have been licensed by the People' Bank of China, the country's central bank, to be market makers in the currency trade, Gillard told a press conference held in Shanghai.

"This is a huge advantage for Australia not only for our big businesses, but also for our small and medium enterprises that want to do business here," she said.

Gillard said a statement for the issue will be released Tuesday.

The People's Bank of China did not answer questions from the Global Times by press time.

Analysts believe that rising bilateral trade is the driving force behind the decision and the move will promote yuan internationalization.

"The two countries have had stable trade and investment over the past years. That's why Australia will become the third country to reach an agreement on currency convertibility," Bai Ming, a researcher at the Chinese Academy of International Trade and Economic Cooperation, a think tank under the Ministry of Commerce, told the Global Times Monday.

China is Australia's biggest trading partner. The two nations' trade volume totaled $122.3 billion in 2012, up 4.9 percent from one year earlier, according to China's General Administration of Customs.

Direct trading between the two currencies will reduce transaction costs and exchange risks in trade, Bai said.

The current system requires converting into dollars when calculating the exchange rate between the yuan and the Australian dollar.

The move will help reduce the large influence of dollar fluctuations on the yuan since the yuan-Australian dollar exchange rate will be decided by trade between China and Australia, Chen Xuebin, a professor at Fudan University, told the Global Times Monday.

Fudan University's yuan index showed that in the first quarter of 2013, the yuan appreciated 0.2 percent against the dollar while most world currencies depreciated against the dollar. However, the yuan's real effective exchange rate appreciated 3.64 percent, which has negatively affected China's exports, according to Chen.

"Being directly convertible to major world currencies is a necessary step to make the yuan an independent and important international reserve currency," Chen said.

Direct trading of the yuan with major currencies such as the euro and the Canadian dollar is expected in the future, further promoting internationalization of the yuan, he said.

The Japanese yen began direct trading with the yuan in June 2012.

Bai also warned that since neither the yuan nor the Australian dollar is a leading currency, the exchange rate between the two will face large uncertainties.