The deal expires within three years and will give central banks, traders, and investors the chance to use their local currency to ease bilateral trading. This is the first currency swap between China and a Middle Eastern nation.
When Chinese Premier Wen Jiabao was touring three Middle Eastern nations in mid January, he established the currency deal with UAE central government. This deal is further proof that the Chinese central government wants to strengthen its business ties with oil-rich Middle Eastern nations and promote two-way trade and investment between them.
This currency deal is just one in its series of currency deals it is signed in recent months. China has signed 12 currency swaps with nations all around the world, including Japan, Thailand, South Korea, Indonesia, and Kazakhstan.
The Chinese central banks are adamant that these major currency deals will increase the use of the RMB in direct trade. Although China has been quiet on this subject, currency analyst are predicting that Beijing long-term goal is to replace the dollar as the world international trade currency with the Rmb, especially since China is the world largest exporting nation and the second largest importer.
UAE is already an established offshore financial center for worldwide companies and governments. The country is known for having low taxes, free trade agreements, and a clear-cut, business friendly environment. This new currency swap will undoubtedly entice more Chinese investors to invest in UAE.
Since the signing of the deal, Chinese investors will be able to directly convert RMB into dirhams and invest or trade, instead of converting the currency to dollars, and then into dirhams, which costs money because of the steep conversation fees. A Chinese banking executive, who asked to remain anonymous, said that he was already investing millions of RMB into UAE financial sector, but he slowed down because the fines took a toll on his account. But this trade agreement will allow him to further invest into UAE growing economy because of the direct conversion he gains from the new currency swap.
