China has announced that beginning June 20, 2016, it will allow direct trading between its Yuan currency and the South African Rand on its inter-bank foreign exchange market, a move which is expected to lower exchange costs whilst boosting investment between the two countries.
The Rand is the 13th foreign currency which can be directly traded with the Chinese Yuan in China's inter-bank foreign exchange market, which says that on the spot forex market, the two currencies can fluctuate by up to 10 per cent from the parity rate each trading day.
Most analysts believe the latest move by China will benefit South Africa and will reduce the cost of trading.
BP Beirnstein forext trade Makwe Masilela says: "That removes the cost because you do not have a third party or another currency that you have to make reference to. In this instance it has been the US dollar.
"This has to be seen in the light that by the end of October 2015, the IMF (International Monetary Fund) added the Chinese currency to their basket to be held as a reserve currency; that was an international stamp of approval of the strength the Chinese government has made to be integrated in this global economy."
The central parity rate between the Yuan and the Rand will be decided according to the average quotation of market players before trading opens each working day.
Masilela says for the longest time, trading on this system has been mainly dominated by the US dollar. "The system was dominated for decades by the US dollar. Europe and Japan, meaning that the standards thereof the Chinese currency can be freely usable you can trade it without any problems hence it was easy for us to agree to them and to start as from Monday."
Masilela says this will further boost companies such as Naspers's whose most successful investment is Tencent, a Chinese technology company.
The IMF made a decision, last year, to allow the Yuan to be included as part of the reserves held by other central banks as is the case with the US dollar, effective from October this year.
Source: Nam News Network