London faces liquidity test in yuan-hub bid

PUBLISHED : Tuesday, 03 July, 2012, 12:00am
UPDATED : Tuesday, 03 July, 2012, 12:00am
 

London is not competing with Hong Kong in developing a yuan trading centre, a top executive at the City of London Corp said yesterday during a tour to promote the British city's role as a Western hub for the Chinese currency.

'It's not a race with Hong Kong to develop an RMB business centre,' Mark Boleat, chairman of policy and resources at the corporation, said.

During his seven-day visit, the executive is scheduled to meet Chinese officials and European firms in mainland China to discuss developments in yuan trading, underscoring the huge interest from financial institutions in opportunities emerging from the internalisation of the currency. Corporation members include Bank of China, Barclays, Deutsche Bank, HSBC, JPMorgan, Royal Bank of Scotland and Standard Chartered Bank.

Boleat said London, as the world's largest foreign exchange hub, was well positioned to develop the offshore centre but the biggest challenge would be liquidity. Last year, London's spot foreign exchange market's daily volume contributed 26 per cent of the global offshore yuan spot market volume, reaching US$680 million compared with Hong Kong's US$1.5 billion.

'We have to get enough liquidity to get it work,' he said.

Boleat said the corporation was working on solving technical problems and educating potential clients in order to 'build up a pool of RMB liquidity'.

London's yuan deposits reached 109 billion yuan (HK$133.79 billion) by April, according to data from the City of London. Hong Kong's deposits were about 538 billion yuan at the end of the same month.

The City of London initiative aimed to help customers trade, bill and bank in yuan, and to offer Western investors the chance to invest in renminbi products, Boleat said.

To expand the currency's capacity and transaction volumes in London, the corporation is advising banks to keep raising awareness of the potential benefits of the yuan.

It also calls on lenders to encourage companies that trade with China to accept or use yuan for payment and to improve services to accommodate new demands in the offshore yuan market.

'Prime brokerage services could be further improved to make investments in the offshore yuan market more cost-effective and easier to access by facilitating the acceptance of yuan-denominated securities as collateral,' the corporation said. It also suggested that banks explore more avenues for investing in the yuan.

Europe overtook Asia to become the largest yuan payment contributor earlier this year, accounting for about 47 per cent of all yuan payments.

Renminbi commercial loans in London reached 280 million yuan last year, trade services topped 88 million yuan, and import and export financing hit 16.3 billion yuan.

74b yuan

The amount of interbank yuan deposits held in London

- 35 billion yuan in customer deposits is held in London

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