Chinese yuan _ renminbi _ currency
Yuan banknotes REUTERS/Petar Kujundzic

Australia announced on Wednesday its intention to introduce China’s yuan into its mix of foreign currency reserves, becoming the third country after the U.S. and Japan to establish a direct currency trading link with the Asian giant.

“Our current intention is to hold around 5 percent of Australia's foreign currency assets in China,” Philip Lowe, deputy governor of the Reserve Bank of Australia, said in a speech on Wednesday at the Australian Chamber of Commerce in Shanghai. “This decision to invest in China is an important one. It reflects the broader economic relationship between China and Australia and our increasing financial ties.”

China's Share Of Australian Trade
Two-way trade between Australia and China is rising quickly. Reserve Bank of Australia

While other countries hold Chinese assets, namely Malaysia, Chile and Nigeria, they are indirect investments in so-called offshore “dim sum” bonds. Australia’s move to direct currency trading on the mainland comes as more central banks view China as a place to park portions of their reserve foreign currencies. Last month, China and Brazil agreed to trade in each other’s currencies, a move away from using the U.S. dollar as their benchmark.

China is moving toward opening up investment and internationalizing its currency.

Australia currently has about $39 billion in foreign currency reserves. Based on that number, it would hold about $1.95 billion worth of yuan. China is Australia’s top trading partner for both exports and imports. Australia is rich in commodities that China needs to fuel its development.