Competition fierce to be first non-Asian yuan settlement service

Britain and China will sign an agreement on Monday to work on setting up the first clearing and settlement service for renminbi trading outside Asia, Britain's Treasury said on Wednesday in a statement.

Financial sector experts in London have welcomed the news, hailing it as a milestone in boosting London's advantage in the contest to become the Western hub for offshore renminbi transactions.

"This is a positive step and is further evidence of the strong links between the UK and Chinese central banks and the public sector," said Spencer Lake, global head of capital financing at HSBC.

Lake said having an official clearing bank will help London's financial market to build up renminbi transaction volumes, which will help with the internationalization of the Chinese currency.

"We expect the currency to be fully convertible in the next two to three years under the capital account and subject to the success of China's overall reform plans," Lake said.

An official clearing service facilitates the efficient clearing of offshore renminbi transactions, achieved through direct cooperation between a commercial bank in London appointed for this purpose and the People's Bank of China.

Having an official clearing bank also allows more liquidity for the offshore renminbi center that hosts the bank. Moreover, it bears symbolic significance for the offshore renminbi center in that it has recognition from the Chinese government.

The announcement came amid fierce competition between different Europe an financial centers, including Paris, Frankfurt and Luxembourg, to become the top destination for offshore renminbi transactions.

For example, Luxembourg Mini ster of Finance Pierre Gramegna said in February that he will put forward the request for Luxembourg to have an official clearing bank when he visits China in June.

British Chancellor of the Exchequer George Osborne said the announcement is a major step forward for London to increase renminbi activity and is a result of hard work by the UK's public sector to drive forward this agenda.

"I've put much government effort over the last three years into making sure we're the leading Western center for trading in the Chinese currency, the renminbi. That effort has paid off," Osborne said.

 

Osborne said London's renminbi transaction growth will lead to growth in jobs and investment in the future.

"Of course, other Western countries will follow, but London now has the critical mas s of infrastructure, helping to put Britain at the front of the global race," he said.

Mark Boleat, policy chairman for the City of London Corp, also welcomed the initiative, adding that it will help to reinforce confidence in London for renminbi activities.

"It should encourage more UK firms to use the renminbi as a currency for international trade," he said.

Britain's Prime Minister David Cameron and China's President Xi Jinping had discussed cooperation between the two countries over appointing a clearing and settlement bank during a meeting on the margins of a nuclear security summit in the Netherlands on Tuesday, Wednesday's statement said.

Statistics released by the City of London in January showed that trade finance transactions using renminbi in London totaled 27.94 billion yuan ($4.61 billion) in the first half of 2013, up from 13.8 billion yuan a year earlier.

Meanwhile, daily average trading volume of renminbi-related foreign exchange products in London expanded to $22.3 billion, up from $11.6 billion.