London and the eurozone look set to benefit in the future from increased trade in Chinese renminbi (RMB), as figures Thursday show yet another monthly increase in its use as a global currency.
On June 19, the London branch of the China Construction Bank (CCB) was named as the clearing bank for offshore RMB transactions in London, and on the same day the Bank of China's (BOC) branch in Frankfurt became the first eurozone financial institution to gain the same status.
Figures released Thursday for May show that both financial centers look likely to benefit from a global trend that sees the RMB increasingly used as a currency for international payment.
SWIFT RMB tracker showed that in May 1.47 percent of global payments were in RMB, a tiny amount compared to the global total but up from 1.43 percent in April and a performance that bucked the May trend which saw all currencies decrease 0.7 percent in value of trade.
The increasing take-up of the RMB as an international currency is underlined in the year-on-year figures -- in May 2013, 0.63 percent of customer initiated and institutional payments was in RMB, less than half the 1.47 percent now.
The establishment of RMB clearing banks in London and Frankfurt is likely to further boost the take-up of the RMB.
Astrid Thorsen, market manager at SWIFT, told Xinhua, "You can expect that the different financial institutions that currently have accounts with Hong Kong and have to follow the rules and the different timezones and so on, may want to prefer to set up new accounts now with the two clearing banks that are re-located in the region."
There are clear and obvious benefits to the establishment of RMB clearing banks. Thorsen said the two new locations put banks and customers closer together allowing greater understanding of needs.
"Banks will be better able to adapt their offering and to provide timely response to their corporate customers versus maybe having a clearing account in Hong Kong or Singapore or somewhere else. That is really getting closer to the market," she said.
Thorsen added, "You really see London and Frankfurt willing to position themselves and maybe offer additional products beyond the clearing activity going forward. Yes, it is going to boost the RMB."
She continued, "With an expansion in trade with Asian countries more and more corporates may be willing to do business in RMB, maybe a substitution from other currencies like the US dollar."
STRENGTHS OF LONDON
Thorsen said that London is one of the "really major FX trading centers, that is one of their big big strengths".
In addition, London could point to its strength in the securities market, said Thorsen. She anticipated that there may be more financial products for investment starting to build up in RMB.
Last week results of a quantitative survey for the City of London Corporation carried out by Bourse Consult showed strong growth in 2013 in the use of RMB in trade finance by corporations in London.
The total amount of RMB denominated trade financing was nearly 43 billion yuan, a 10 percent increase on 2012, with the most significant growth seen in export financing.
In terms of volume, the Bourse Consult report found that London's strength was in foreign exchange trading, with a 140 percent increase over 2012 to reach an average daily value of 18.7 billion US dollars on trading in deliverable products, which overtook non-deliverable in the majority market share for the first time as result of greater RMB liquidity.
But it's not just the amounts which are increasing, it is also the share of the trade that is carried out in RMB that is increasing, as the latest SWIFT figures show.
SWIFT's May figures show the usage of RMB in international trades between China and Hong Kong and the European non-eurozone area, which includes London, increased from 25 percent of trades in May 2013 to 38 percent of trades.
For the eurozone areas over the same period a similar tale of increased volumes is told -- RMB usage up from 19 percent in May 2013 to 29 percent now.
This looks set to increase over the coming year. Thorsen commented that the two new RMB clearing banks would increase "speed and attractiveness" of RMB trade. (1 US dollar = 6.22 Chinese yuan)
