China, New Zealand mull currency deal

China and New Zealand are in talks over making their currencies directly convertible, a spokeswoman for the New Zealand prime minister confirmed Monday, raising the possibility of increased international use of the yuan.

"The prime minister and China's leaders did agree on the desirability of investigating New Zealand dollar and yuan convertibility when the PM was in China recently," and officials are now looking into the issue, the spokeswoman said in a statement e-mailed to the Global Times Monday.

New Zealand Prime Minister John Kay met Chinese President Xi Jinping at the Boao Forum in Hainan in April.

Currently, companies and traders in China and New Zealand need to convert the yuan or New Zealand dollars into US dollars when doing business.

"However, there is no timeframe for concluding an agreement. We are aware that it took Australia around 12 months to achieve its recent agreement with China," the statement from the New Zealand prime minister's office said.

China and Australia signed an agreement in April to allow the Australian dollar to trade directly with the yuan, making it the third currency to do so after the US dollar and Japanese yen.

The People's Bank of China, the country's central bank, did not respond to questions from the Global Times by press time Monday.

"China is committed to opening up its financial market and establishing the status of the yuan as an international currency. To do so, it must liberalize its capital account to allow investment capital to flow freely," Bai Ming, a researcher with the Chinese Academy of International Trade and Economic Cooperation (CAITEC), told the Global Times Monday.

"But that can't be done overnight. The direct trading of the yuan with other currencies is an important step toward that goal," he said.

China has embarked on financial reforms in recent years to enhance the use of the yuan in international trade and investment.

At a regular meeting of the State Council, the country's cabinet, early this month, Premier Li Keqiang pledged to come up with an operational plan to allow full convertibility of the yuan under the capital account within the year.

"But the immediate impact of the yuan-New Zealand dollar convertibility deal would be that it could reduce transaction costs when doing business between China and Zealand and increase the trade and investment between the two nations," said Bai from CAITEC.

China remained New Zealand's biggest trade partner in the three months between February and April, a position it took from Australia in the first quarter of the year, data from Statistics New Zealand showed last week.

New Zealand's exports to China reached NZ$2.31 billion ($1.9 billion) in the first quarter, up 47 percent from the previous quarter, led by sales of meat, milk powder and pine logs.