In an effort to further economic ties, China and Singapore will begin exchanging currencies in the interbank market on Tuesday (October 28).

The People's Bank of China (PBOC) has authorized the China Foreign Exchange Trade System (CFETS) to facilitate direct trading with the renminbi (RMB), more often referred to as the yuan, and the Singaporean dollar (SGD).

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The move comes on the heels of euro's entrance in the Chinese forex in September. The yuan is also currently trading with the Australian dollar (AUD), British pound (GBP), Japanese yen (JPY), Malaysian ringgit (MYR), New Zealand dollar (NZD), Russian ruble (RUB) and U.S. dollar (USD).

Chinese Vice Premier Zhang Gaoli made the official announcement during a series of meetings with Singaporean Deputy Prime Minister Tee Chee Hean and senior officials on Monday to discuss financial cooperation, as well as partnerships in sustainable development, and culture and economic transformation, state news Xinhua reported.

It was confirmed with news releases from CFETS and People's Bank of China's websites.

The trade is seen to benefit economic players by offering lower conversion rates. The old process required an immediate currency such as the U.S. dollar to form a triangular exchange, which means higher transaction costs.

"Financial cooperation has become a pillar for Sino-Singapore bilateral relations," said Jacquelin Loh, managing director of the Monetary Authority of Singapore.

"As China proceeds with its structural transformation and financial reform, financial cooperation between the two countries will grow in importance and mutual benefit," she added.

China and Singapore will be celebrating the 25th anniversary of its diplomatic friendship in 2015.

The CEFTS is set to publish a daily parity between the RMB and the SGD at 9:15 a.m., Eastern Time. Spot market rate will be allowed to float 3 percent higher or lower from parity.

The Chinese-Singapore exchange opens today at 1 SGD [0.78 US$] to 4.8 CNY.  

TagsBusiness Finance, Asia, currency, Bank of China, Foreign exchange market