European Central Bank

Frankfurt joins race for offshore trading in yuan

ECB is expected to obtain a swap deal worth four times more than what Britain has secured

PUBLISHED : Thursday, 04 July, 2013, 12:00am
UPDATED : Thursday, 04 July, 2013, 3:48am

The race is on to corner the overseas trade in the yuan, with an organisation that represents Frankfurt's financial industry predicting the European Central Bank will get a swap deal valued at four times that obtained last week by Britain.

The ECB may obtain a swap agreement with the People's Bank of China valued as much as 800 billion yuan (HK$1 trillion), according to lobby group Frankfurt Main Finance.

A deal would give euro-zone central banks access to yuan funds to backstop companies doing business in the world's second-largest economy and would dwarf the 200 billion yuan agreement signed on June 24 by the Bank of England.

Policymakers and bankers met executives of companies from carmaker Volkswagen to industrial gas producer Messer in Frankfurt yesterday to discuss establishing the city as an offshore trading centre for the yuan. It is the latest chapter in China's push for greater use of its currency outside the country.

"This has been an issue for our clients for years," said Dirk Schmitz, a co-head of the German investment banking arm of Deutsche Bank, the biggest currency trader.

"German companies have a good commercial relationship with China. Companies often come to us to ask for hedging."

In a swap agreement, the ECB would put up euros in exchange for the yuan, which it could then lend to companies.

An ECB official, who asked not to be identified, declined to comment on the talks, in line with the central bank's policy.

Germany is China's biggest trading partner in Europe. By 2015, a third of China's cross-border business will be settled in yuan, making the currency the third-most traded after the US dollar and euro.

The three-year swap agreement that Bank of England governor Mervyn King signed with his Chinese counterpart, Zhou Xiaochuan, is half the size of Hong Kong's 400 billion yuan deal.

Yuan transactions hit 8.2 per cent of trade deals between Germany and China in May, says the Society for Worldwide Interbank Financial Telecommunication.