SHANGHAI, May 19 (Xinhuanet) -- At the trading system of the Shanghai-based China Foreign Exchange Swap Center on Wednesday morning, the Bank of China and Fujian Industrial Bank finished the Center's first trading between the greenback and the HK currency at 7.7993 HK dollar against one US dollar, with a turnover of one million US dollars.

    The debut of transactions between foreign currencies on the Chinese mainland is seen by China's financial circle as a landmark in the sector's internationalization drive. It is also hailed by the business media as a step forward in the nation's experiment with full convertibility of Renminbi (RMB), the Chinese currency.

    In the past, Chinese banking institutions were only allowed to deal in trades between RMB and foreign currencies. Worse, they were unable to buy and sell foreign currencies directly on international money markets with foreign exchange (forex) they held, due largely to their low credit ratings and high risks of exposure.

    The newly acquired access to two-way trade among foreign currencies implies that China's interbank market is evolving into a foreign exchange market that could really transfer and manage risks in exchange rates, according to financial experts.

    Zheng Yang, deputy head of the State Administration of Foreign Exchange (SAFE) Shanghai branch, said China has suffered a deficit in trade of financial services for years. "To trade foreign currencies directly allows international trade between Chinese and foreign banks to transform into domestic trade," Zheng Yang acknowledged.

    According to Li Yu, vice president of the China Foreign Exchange Swap Center, the new forex market will also help experiment with RMB derivatives.

    "The step forward in the RMB convertibility process and the growth of the liberalization and internationalization of Chinese currency is bound to demand a matching RMB pricing platform that is closely related to international forex markets," Li said.

    The new trade between foreign currencies has ushered in international practices, active international market makers and a pricing system that keeps pace with the global forex market, he added.

    It has attracted seven transnational banks, including Citi Group and HSBC (Hong Kong and Shanghai Banking Corp.). They, in partnership with three Chinese banks, have become the first batch of market makers on China forex swap market.

    "The eight pairs of foreign currencies in trade on the Chinese mainland boast good liquidity. This will help China's interbank forex market to build up a trustworthy image on world markets," said Rod Jones, executive managing director of the International Capital Markets under the Bank of Montreal from Canada.

    Jay Lim, vice president of eCommerce Asia Pacific Global Markets under ABN AMRO from the Netherlands, said the new forex trading mode "is writing the history of China's financial market." Enditem