China and Japan have begun work this month to produce a mutual currency exchange system.

Trade between the world’s second largest and third largest economies is currently done in dollars, according to Reuters. This is largely due to the financial regulations and market customs.

However, steps are being taken to promote direct currency exchange between the two countries. The two governments agreed in December to consider measures to facilitate such trade.

Exchange between the Yen and Yuan would lower currency risks and settlement costs.

The Japanese newspaper Nikkei reported that a bilateral working committee would look at encouraging investment into the banking systems and boost the number of foreign exchange dealers.

There has been a gradual relaxation on the use of the Yuan in international transactions, which has led to an increase of Chinese trade now being done in Yuan. The Chinese authorities are working in a series of initiatives to internationalise the currency, which could come into force within a few years.

The move makes good sense for the two countries, particularly as China has recently become Japan’s biggest export destination and number one trading partner, overtaking the United States.

Other countries including Britain, Singapore and Taipei are already seeking a share of the growing offshore Yuan businesses. 

Transferring money to China  

If you are looking to invest in China, think carefully about how you will be transferring money to China. 

Foreign currency exchange rates quoted by banks are almost always worse than the exchange rates available through specialist currency dealers. 

So if you are sending money to China– which you will inevitably have to do if you are looking to make a property investment, be sure to compare the market before you buy your overseas currency.