THE central banks of China and Canada have agreed to a currency swap worth 200 billion yuan (US$32.67 billion), or C$30 billion, according to a statement issued by the Canadian Government on Saturday.

    The swap will be effective for three years, according to a separate statement from China’s central bank. The agreement was announced after Canadian Prime Minister Stephen Harper met Chinese Premier Li Keqiang.

    China’s central bank, the People’s Bank of China, will also appoint a clearing bank in Canada for yuan — or renminbi, as the currency is also called — as part of a memorandum of understanding, said the statement. It did not say which bank would be appointed as the clearing bank, but it is likely to be one of China’s four largest banks.

    China’s central bank said that the yuan clearing bank would be in Toronto.

    The currency swap will help set up the clearing bank, and allow the two banks to swap currencies if needed to ease trade and investment. The yuan clearing bank would be the first in the Americas, and allow Canadian financial institutions to use the clearing bank to process payments for their customers in yuan.

    The move is in line with China’s ambition to promote its currency to more international investors and eventually turn the “redback” into a global reserve currency.

    “This is a fantastic announcement for Canada and China relations, a terrific move for Canadian businesses to be able to compete more abroad, “ said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.

    China will additionally give Canadian investors the right to invest up to 50 billion yuan initially in China’s capital markets. The quota will be granted under the Renminbi Qualified Foreign Institutional Investor program. (SD-Agencies)