Direct trading with yuan, Singapore dollar begins

China's interbank market witnessed the debut of direct trading between the Chinese yuan and the Singapore dollar on Monday, which symbolizes the country's efforts to further promote the convertibility of the yuan and boost the globalization of its currency.

The People's Bank of China, the central bank, announced the direct trading between the two currencies in a statement released on Monday.

The Singapore dollar has become the seventh foreign currency that can be directly exchanged into the yuan without having to be converted into the US dollar first.

Direct trading will lower trading costs and potential exchange losses, Zhang Xiaobo, a foreign exchange trader with China Guangfa Bank, told the Global Times on Monday.

"We have seen greater liquidity in trading the Singapore dollar in the market," he said. Direct trading of the two currencies on the first day is very active, fivefold to tenfold of the trading value before, Zhang estimated.

A total of 13 banks including China's Big Five State-owned banks and Singapore-based DBS Bank are market makers for the trading, he said.

"This is a key milestone and significant step forward for renminbi internationalization and China's financial markets reform," DBS China CEO Neil Ge told the Global Times in a note on Monday, noting more robust yuan trading and liquidity will further boost two-way trade and investments.

However, in the initial phase, the pricing of the two currencies is based on the pricing between the local currency and the US dollar, Guangfa Bank's Zhang said.

Direct trading will also push forward the yuan's full convertibility under the capital account, Liu Ligang, chief China economist at ANZ Banking Group, told the Global Times on Monday.