China's move to allow direct trade between the yuan and the Australian dollar is tipped to deepen financial links between the two countries and make the $120 billion-a-year trade relationship more efficient.
Prime Minister Julia Gillard confirmed on Monday that Australia would become the third country that will be able to trade its currency directly with the yuan, or renminbi (RMB), following the US and Japan.
Westpac and ANZ are the first two banks that will be able to offer a direct conversion between the two currencies, which must now be completed in a roundabout process via the US dollar.
Commonwealth Bank is applying for a licence so it can trade the two currencies directly, and it's understood NAB is making the same move.
Jonathan Cavenagh, a Singapore-based currency strategist at Westpac, said the deal would save exporters money on transaction costs.
In the longer term, it will also give exporters more opportunity to invest in a range of yuan-denominated products as China opens up its financial system. Exporters who are paid in yuan, for instance, would have the option of investing in "dim sum bonds" - RMB-denominated products traded in Hong Kong.
"This is a continuing part of China's long road to RMB internationalisation. They are trying to encourage market participants to use RMB," Mr Cavenagh said.
"This is definitely a step in the right direction. It's a very positive development for Australia's financial sector, but it's one step on a long journey."
The deal also had the potential to benefit exporters because there was a general view that the yuan was on a long-term appreciation trend, Mr Cavenagh said.
ANZ chief executive Mike Smith said the likely saving on transaction costs would be "a few basis points".
While this saving was "not huge", it would save time, he said.
He also said a new dollar-yuan currency market worth billions of dollars would emerge to service the needs of Australian and Chinese businesses.
"That will pick up fairly quickly - if you look at how the internationalisation of the renminbi has moved in Hong Kong, it's already into the tens of billions," Mr Smith said.
Since China began to allow greater internationalisation of its currency in 2010, the share of China's trade conducted in RMB has increased from 0.5 per cent to 14 per cent, Mr Cavenagh said.
Australia's commodity trade with China, however, is now done almost exclusively in US dollars. More than 98 per cent of coal and iron ore exports were sold in US dollars last financial year.
Ms Gillard said the change would bring a long-term stimulation in Australia's financial sector.
"It's an important foundation stone for what we can achieve in the future, a future of huge opportunities and potential," she said.