B. C. renminbi hub unlikely

China’s RMB lacks characteristics to be considered reserve currencies

Re: Asia Pacific Gateway must be ready for the ‘redback’, Sept. 27

In his op-ed, Colin Hansen, president and CEO of Advantage BC and former provincial finance minister, was promoting the idea of Vancouver becoming the next global hub for direct currency exchange to and from the renminbi (RMB), China’s currency. A study commissioned by Advantage BC estimated benefits of this for Canadian business if all our trade with China were denominated in renminbi could be at least $480 million.

The problems associated with such a venture are significant. First, and foremost, are the risks associated with holding large balances of renminbi. Where would these balances be held: in Canada or in China? If in China, what security would be offered; and if in Canada, what insurance would there be against currency devaluations by China?

Second, where would settlement occur? While Hanson characterized this as a minor problem, settlement is crucial to any trade transaction and timing is extremely important. Delay of a day can imply significant costs. The main settlement centre in Canada is Toronto and establishing another in Vancouver would be costly and could generate confusion for exporters and importers.

Moreover, the renminbi is not a reserve currency equivalent to the U.S. dollar, the British pound or the euro. The centres that deal in those currencies have four common characteristics that are noticeably missing from any centre in China. They are the rule of law, certainty of contracts and defined methods for settling disputes, and open exchange of funds and finally, a transparent set of regulations governing financial institutions and markets.

Until China can offer those attributes the risks associated with dealing only in renminbi are perhaps greater than most enterprises are willing to accept.

It is perhaps most telling that Hansen cited Hong Kong as being the first and largest renminbi currency hub. The current turmoil in that city is proof positive of just how little freedom of action is permitted in what has been characterized as “one nation two systems.” The system is determined by the Communist party hierarchy in Beijing not in Hong Kong.

It will be a far distant day when the renminbi becomes an international reserve currency used to settle trade accounts. If Vancouver and the B.C. government hope to establish Vancouver as a RMB hub they are chasing a dream with even less chance of being realized than a rapid development of LNG exports. DAVID BOND Kelowna