China is seeking to promote global use of the yuan.
Qatar will become the Middle East's first hub for clearing transactions in the Chinese yuan, in a step that could over the long run help Gulf oil exporting countries reduce their dependence on the US dollar.
Industrial and Commercial Bank of China's Doha branch has been appointed as the clearing bank for yuan deals in Qatar, China's central bank said on Tuesday.
"The signing of the MoU and the appointment of the renminbi clearing bank will increase the strong ties between China and Qatar and position Qatar as the regional centre for renminbi clearing and settlement," the Qatari central bank said.
Seeking to promote global use of the yuan, China has in the past two years appointed clearing banks for Taiwan, Singapore, London, Frankfurt, Paris, Luxembourg and Seoul. Hong Kong and Macau had clearing banks earlier; Sydney is expected to join the list under a deal to be signed later this month.
A clearing bank can handle all parts of a transaction from when a commitment is made until it is settled; having such a bank can reduce costs and time taken for trading, boosting activity in a financial centre.
At present, the Gulf's wealthy oil and gas exporters rely heavily on the US dollar; most of their currencies are pegged to the dollar, and most of their huge foreign currency reserves are denominated in dollars.
This is largely because their energy exports to China are mainly denominated in dollars, the currency of choice in oil and gas trade. The yuan is still believed to be years away from becoming a fully convertible currency, limiting its attraction for use in central bank reserves.
Although the yuan is now used to settle over 24% of China's total trade, up from 3% in 2010, according to estimates by HSBC, bankers believe the share for Chinese trade with the Gulf is much lower, at about half that level.
However, Qatar's deal with China suggests it is looking ahead to a time when that will change. As the Gulf's trade and investment ties with China boom, the yuan is becoming increasingly important to the region.
"It's a clear signal that there is demand from Qatar and some of the surrounding Middle Eastern countries," said Candy Ho, global head of yuan business development at HSBC.
Qatar, which has some $43bn in net foreign currency reserves and an estimated $170bn in its sovereign wealth fund, is the biggest supplier of liquefied natural gas to China.
Its overall trade with China soared to 41.9bn riyals ($11.5bn) in 2013 from just 1.5bn riyals a decade ago, with petroleum gases now accounting for over 60%, data from Qatar's statistics authority shows.
The clearing deal with China appears to represent a win for Qatar in its competition with other Gulf financial centres, particularly Dubai, which is the region's largest banking hub.
"Having a renminbi...clearing bank in Qatar would not only serve the renminbi fund flows in and out of the country through trade and investment. It shows Qatar's decision to draw business from other Middle Eastern countries in the region to pursue trade through Qatar," Ho said.
On Monday, the Chinese and Qatari central banks signed a 35bn yuan ($5.7bn) currency swap deal, equal in size to a three-year currency swap agreement inked between China and the UAE in 2012.
The deals allow the central banks to swap currencies if needed to ease trade and investment, and could be used to diversify the Gulf central banks' foreign reserves.
The Qatari clearing announcement was made as Ahmed Al-Sayed, chief executive of sovereign wealth fund Qatar Investment Authority, visited Beijing, signing an agreement with China's CITIC Group Corp to launch a $10bn fund that will invest in Asia.
Under another deal revealed this week, Qatari investment institutions will get the right to invest up to 30bn yuan in mainland Chinese securities.Last updated:
LEAVE A COMMENT Your email address will not be published. Required fields are marked*
New Al Khor & Al Thakhira Sewage Treatment Works enters trial phase
Milipol 2022 to showcase innovations in homeland security
Security guard killed in Qatar Embassy in Paris
Amir arrives in Switzerland
Dust mass heads towards Qatar
India wins QFA's Asian Communities Football Tournament
WFP executive director receives credentials of Qatar representative
Qatar's readiness to host World Cup reiterated at conference
Health minister honoured with WHO's special award