The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.
London and HK push for yuan role
Lord Mayor of the City of London wants to see it and Hong Kong play bigger roles in the internationalisation of the yuan
A high level forum of Hong Kong and London bankers will meet again in December to study measures to push the two cities' roles in the internationalisation of the yuan, according to David Wootton, Lord Mayor of the City of London.
A forum formed by bankers including those from HSBC, Standard Chartered Bank, Deutsche Bank and Barclays was formed earlier this year to work out plans to further promote the two cities as off shore yuan trading centres.
Wootton said the forum, which will meet in London after its inaugural meeting in Hong Kong in May, will study how to improve settlement systems, market liquidity and yuan financial products.
Through the forum, the British government is working with the Hong Kong Monetary Authority to introduce the right arrangements to develop the offshore yuan market, he said. "We in the City of London support fully the development of the offshore yuan market,'' Wootton said in Hong Kong during his visit to meet with Chief Executive Leung Chun-ying and other financial officials and key business leaders.
"We are not in a competition with Hong Kong but to complement and act as an extension of the use of the yuan in Europe and the West. This is a type of partnership which is for the mutual benefit of both Hong Kong and London."
Wootton said London would be a suitable centre to develop yuan trade settlement due to the city having a strong foreign exchange market and a solid trade relationship with China. Although Britain was hard hit by the global financial crisis, it still saw its exports to China surge 20 per cent last year.
Wootton said London has already had accumulated more than 109 billion yuan (HK$133 billion) in deposits while companies such as HSBC have issued dim sum bonds - yuan denominated bonds - in London.
Besides yuan business, Wootton said London can also share its experience with Hong Kong in terms of developing green financial products.
"London is a global leading centre in carbon emission contracts trading. We can help Hong Kong develop its green financial products and services so as to support Hong Kong to develop as a low carbon economy," he said.
Over a third of Britain's economic growth last year came from green-related businesses, which already accounts for 8 per cent of gross domestic product.
"Our green economy grew by £5.4 billion (HK$67 billion) last year and now employs nearly one million people," he said.
Wootton also said London would like to see more mainland firms list in London but said they would need to disclose information in accordance with regulatory requirements.