U.K. ready to create bank for yuan deals

As London bids to become an offshore yuan trading centre, Bank of England says it could set up a clearing bank for the Chinese currency

PUBLISHED : Thursday, 14 November, 2013, 3:09am
UPDATED : Monday, 27 June, 2016, 11:50am

The Bank of England is ready to help create a clearing bank for yuan in London as the city seeks to become an offshore hub for trading the currency, said chief cashier Chris Salmon, the man responsible for issuing British banknotes.

While Britain did not "absolutely" need such an institution for yuan transactions, there was a "will in the market for a London clearing bank to be established", Salmon said on Tuesday. "We'll be prepared to facilitate that, in so far as we need to," he said.

British Prime Minister David Cameron plans to lead a trade delegation to China next month, after Chancellor of the Exchequer George Osborne announced in Beijing last month that China and Britain would introduce direct trading between the yuan and the British pound.

China also approved an 80 billion yuan (HK$101 billion) quota for financial institutions in London to invest in China's domestic securities under the renminbi qualified foreign institutional investor scheme. "If you think the RQFII provides a way for capital to flow back to China from outside, and in the context of liberalisation of the capital account, it's a step forward," Salmon said.

Further agreements between Britain and China on yuan settlement and clearing are planned.

Talks would begin on enabling Chinese banks to establish wholesale branches in Britain for the first time, allowing them to scale-up their business activities, Osborne said last month.

"It's not a special arrangement" for Chinese banks, Salmon told the Conference on the Future of Renminbi in the Global Financial Markets, organised by City & Financial. "It's part of a broader policy."

In June, the Bank of England became the first European central bank to establish a currency-swap facility with China, supporting yuan users by providing liquidity when needed.

Britain was committed to keeping the London market liquid, including possibly setting up a clearing bank, said Sajid Javid, a financial secretary to the Treasury.

Salmon said that while there was no imperative to establishing a London clearing bank, "it can't hinder the market growing".

The use of the yuan is increasing as China opens up its capital markets.

In the first nine months of this year, about 17 per cent of China's global trade was settled in the currency, compared with less than 1 per cent in 2009.