TORONTO -- North America's first trading hub for China's currency, the renminbi, will strengthen the trade relationship between Canada and the Asian economic powerhouse, federal Finance Minister Joe Oliver said Monday.

"There is tremendous potential to grow this trade relationship," Oliver said at the Toronto launch of the trading hub's clearing function.

"China is expected to be the world's largest economy by 2020. The Chinese middle class is expanding dramatically -- and a market of 1.4 billion people represents an enormous opportunity for Canadian businesses."

Oliver also said the two countries have complementary needs in the resources sector.

"We need to diversify our markets and China wants to diversify its sources of supply," Oliver said at there gathering where Export Development Canada and the Industrial Commercial Bank of China were signing a memorandum of understanding.

The off-shore, virtual trading hub will allow for faster conversion of Canadian dollars into the renminbi, also known as the yuan.

The move is intended to help Canadian companies save on exchange costs and to increase trade between the two countries.

It will also make Canadian exporters' goods more attractive to Chinese companies that prefer to pay in renminbi.

The deal to establish a renminbi trading hub was announced during Prime Minister Stephen Harper's trip to China last fall.

"At its core, the relationship with ICBC is about laying the groundwork to help make it easier for Canadian companies with business interests in China to manage their currency exchanges and their Chinese market financing," said Mairead Lavery, senior vice-president of business development at EDC.

"ICBK and EDC will be looking at ways to make the transactional aspect of Canadian and Chinese trade a little less cumbersome."

A report by the Canadian Chamber of Commerce said that creating the trading hub could boost exports from Canada to China by as much as $32 billion.

And Canadian exporters could save as much as $2.8 billion in transaction costs over a decade.

In a statement prior to the ceremony, Oliver said that through lower transaction costs, it would now be easier for Canadian firms to trade with and do business in China.

"This will mean jobs, growth and long-term prosperity for Canadians and a brighter future for both our great countries," Oliver said.

Here are five things you should know about the first renminbi, or yuan, trading hub in North America:

  • The Chinese currency has surpassed the Canadian and Australian dollars to become the fifth most frequently used currency in international payment , according to data from the Society for Worldwide Interbank Financial Telecommunication.
  • The trading hub doesn't convert directly between the Canadian dollar and the renminbi. The hub will convert Canadian dollars to U.S. dollars before converting them to renminbi. After the hub has been up and running for some time, Chinese and Canadian authorities could sign a secondary agreement that will allow for direct conversion.
  • By allowing for faster, more secure conversions into China's currency, the virtual trading hub will allow Canadian exporters to save on exchange costs. A number of countries in Asia and Europe are already doing business using the renminbi, including Singapore, Britain, Germany and Australia.
  • The renminbi has been fluctuating in value and those fluctuations are likely to make Chinese importers more interested in paying in renminbi, rather than U.S. dollars.
  • There is a limited amount of time for Canadian companies to benefit from the trading hub's competitive advantage. Currently, it is difficult to get capital in and out of China. However, China is expected to liberalize its financial system in about three to five years.