New Zealand's economic ties with China have been strengthened with a deal to allow direct trading of the New Zealand dollar against the Chinese currency the renminbi or yuan.
The deal, struck relatively swiftly negotiations began in April last year, will reduce costs for exporters and importers by removing the necessity for transactions to be settled in two foreign exchange trades via a third currency - usually the US dollar.
Prime Minister John Key and China's Premier Li Keqiang announced the agreement after meeting at the Great Hall of the People during Key's first day of an official visit to China this evening.
"It's great to have been in Beijing to witness the conclusion of negotiations to launch direct trading of the New Zealand and Chinese currencies, which I kicked off during talks with President Xi on the margins of the Bo'ao Forum in April 2013", Key said.
"I am delighted that the project has been brought to a successful conclusion so quickly.
It highlights the strong relationship and goodwill between New Zealand and China."
Key said the agreement "will make doing business with China easier by reducing the costs of converting between the two currencies, and will stimulate trade and investment".
"Direct trading will also increase the integration between the New Zealand and Chinese financial systems, and deepen the economic relationship between the two countries."
The New Zealand dollar is only the sixth currency to be directly traded with the renminbi or yuan. The other currencies are the US dollar, Japanese yen, Russian rouble the Malaysian ringgit and the Australian dollar which gained that ability last year.
The Government would continue to work with New Zealand banks, other financial institutions, and exporters and importers who trade with China, "to raise awareness of the benefits of pricing in the two currencies and how direct trading can help".
In a related move, Westpac last night confirmed it had received approval from the People's Bank of China to act as a "market maker" or intermediary for direct trading of the New Zealand dollar and renminbi on the China Foreign Exchange Trading System.
The market maker licence allowed direct interbank trading of the New Zealand dollar and Chinese yuan, "meaning reduced transactional costs and over time increased liquidity to currency deals between New Zealand and Chinese trading partners" Westpac NZ chief executive Peter Clare said.
"Today's announcement helps make trade with China more efficient and will open future opportunities to strengthen the ties between the two countries"
Westpac general manager of corporate and institutional banking Karen Silk said Westpac was one of only two Australian/New Zealand banks to offer direct convertibility for mainland China transactions. The Herald understands the other bank is the ANZ.
# The New Zealand dollar has become only the sixth currency to be directly traded with the renminbi or yuan and only the 4th currency to be granted 'market maker' status allowing trade on China's forex system.
# Direct convertibility between the NZ dollar and renminbi cuts out the requirement and additional cost of converting via the US dollar for exporters and importers
# Westpac says the New Zealand dollar's new status should increase the visibility of this country's business in China.
# The renminbi (CNY) is now ranked as the 2nd most used currency in trade finance.