Aud/rmb Currency Agreement

[MrWorldwide]

I wasn't entirely sure how this would impact Australians initially,. not being a financial whiz, but it seems to be a good deal for business even if the difference for most tourists isnt going to be huge. This explanation of the situation prior to the deal being signed by PM Gillard and the Chinese made sense to me - bolding is mine -

The answer is that the RMB/$AUD rate is arrived at indirectly. In the $USD/$AUD market, the current rate is 1.045585. This means that $AUD1 buys $USD1.045585, and $USD1.045585 buys RMB6.484542 (1.045585*6.201832). Therefore, the quoted RMB/$AUD rate is that $AUD1 buys RMB6.48454.

What is now being proposed is the creation of a new foreign exchange market where the renminbi and Australian dollar can be traded directly in the same way that the renminbi and US dollar have long since done. The price in this market will then represent the RMB/$AUD exchange rate.

Such a move would continue the trend begun last year, whereby China allowed the renminbi to begin trading directly against the Japanese Yen.

For Australia, there are two main advantages in having the renminbi and Australian dollar trade directly against each other.

Firstly, trading in foreign exchange markets is not costless. Having a RMB/$AUD market means that only one trade needs to be executed, as opposed to two the moment. This is mainly where the cost savings being touted for Australian businesses lie.

Secondly, the presence of an RMB/$AUD market means that the RMB/$A rate can, at least in theory, better reflect developments in the two countries, irrespective of what is happening in the US. For example, for a variety of reasons, the Chinese government has shown an unwillingness to let the RMB/$USD rate fluctuate significantly. What this has meant is that any fluctuations in $USD/$AUD rate have also resulted in fluctuations in the RMB/$AUD rate, because it is calculated indirectly.

http://www.macrobusiness.com.au/2013/04/a-new-australian-dollaryuan-nirvana/