The New Zealand dollar will start trading directly with the Chinese yuan starting Tuesday as the world’s second-biggest economy seeks higher participation of its currency in international finance and trade.
The deal; which was announced in a visit to Beijing by John Key, the New Zealand Prime Minister, will lower foreign-exchange costs between the two countries by eliminating the use of the U.S. dollar as the intermediate currency.
The reference rate for the two currencies will be set at 9.15 a.m. daily in Shanghai, with yuan expected to move up to 3 percent on either side of the parity rate, according to a statement posted on the website of the China Foreign Exchange Trading System.
New Zealand kiwi will now be the fourth currency that can be converted into the yuan, after the U.S. dollar, the Japanese yen and the Australian dollar. Singapore and the U.K. disclosed last October that they had entered into agreements with China to allow their respective currencies to trade directly with the yuan.
The yuan recently became the world’s second most traded currency, overtaking the euro. With the trade between New Zealand and China estimated at $18 billion, the new deal will no doubt have a positive noticeable effect on the much-smaller New Zealand’s economy.
“Direct trading with New Zealand will help boost the global usage of yuan through trade settlement and invoicing,” said Tommy Ong, the Hong Kong-based head of treasury and markets at DBS Bank. “It will also contribute to lower transaction costs for companies since there’s no need to go through two currency pairs but one.”
To contact the reporter of this story; Jonathan Millet at firstname.lastname@example.org