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November 06, 2014 16:29 ET

A Renminbi Hub Would Make Canada an Even More Attractive Destination for Business: BMO

TORONTO, ONTARIO--(Marketwired - Nov. 6, 2014) - The prospect of becoming the first North American Renminbi (RMB) trading hub represents an opportunity for Canada to become an even more attractive location for business, according to a report from BMO Economics.

"The Canadian economy has performed admirably in the post-global financial crisis world," said Benjamin Reitzes, Senior Economist, BMO Capital Markets. "After leaping from sixth to second place in Bloomberg's rankings of the most attractive destinations for business in 2013, the establishment of a RMB hub would help Canada continue this momentum."

Mr. Reitzes noted that Canada's banking sector was rated the soundest in the world for the past seven years by the World Economic Forum - a key advantage versus the rest of the world. "A hub would serve to to increase the diversity of business within Canada's financial sector, increasing its resilience."

Mr. Reitzes stated that the increasing importance of China's economy makes attaining the status of housing the primary location for North American RMB trading particularly attractive. "China's economy has grown dramatically over the past decade with its share of the global economy surging from just 7 per cent in 2000 to more than 16 per cent this year. IMF projections show China overtaking the U.S. as the largest economy in the world by the end of the decade, and other measures already suggest China is the largest economy in the world. China's growing clout is evident in foreign exchange markets as well, with the RMB the 9th most traded currency as of April 2013. While the RMB's share was a modest 2.2 per cent of total FX turnover in 2013, that figure had risen from near-zero in less than a decade. RMB trading is a growing business."

Mr. Reitzes also noted that Canada already has a strong trading relationship with China, though there remains significant opportunity for growth. "China is now Canada's second largest trading partner with activity growing at close to a double-digit rate, having already more than doubled over the past decade. Given anticipated solid growth from China throughout the forecast horizon, trade ties should only broaden further. Becoming a North American RMB trading hub could lower costs for Canadian firms dealing with Chinese counterparties, as an increasing share of Chinese trade transactions are being transacted in RMB."

"Canada is well-positioned to benefit from becoming the first North American RMB trading hub," said C.J. Gavsie, Global Head of FX Products & China Capital Markets, BMO Capital Markets. "The pieces are in place to make this happen in the very near future."

Why a Canadian RMB Hub Matters

  • China is Canada's second largest trading partner with trade growing nearly 10 per cent per year, having already more than doubled over the past decade
  • The IMF projects that China will overtake the U.S. as the largest economy in the world by the end of the decade
  • The RMB is the 9th most traded currency as of April 2013 - up 8 spots from 2010 and 20 spots since 2004
  • A hub would allow Canadians to access RMB on the open market - removing additional foreign exchange transaction costs

The full report can be downloaded at www.bmonesbittburns.com/economics/reports/20141106/sr141106-rmb.pdf.

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