Yuan begins direct trading against sterling

Move comes as Bank of China becomes first lender to clear Chinese currency in euro zone

PUBLISHED : Friday, 20 June, 2014, 12:59am
UPDATED : Friday, 20 June, 2014, 1:41am

Yuan internationalisation took key steps forward yesterday as direct trading of the currency against the pound began and the People's Bank of China announced the first yuan clearing bank in the euro zone.

The moves mark major developments, giving the yuan a presence in the world's biggest foreign exchange market and laying the groundwork for allowing it to trade directly against the world's second most actively traded currency - the euro.

The pound is the fifth major currency to trade directly against the yuan, joining the Australian and New Zealand dollars, the Japanese yen and the US dollar, and the move to direct trading beats plans by Singapore and South Korea.

Direct trading means the fixing of the exchange rate will be computed without involving a cross rate with the US dollar, as currently happens.

The selection of Bank of China's Frankfurt branch as the first bank in the euro zone able to clear payments in the Chinese currency will help Germany's financial capital become a hub for yuan trading as China promotes greater use of the currency in global trade and finance.

The move comes after China Construction Bank was named as the yuan clearing bank for London.

Germany and China's central banks agreed on March 28 to cooperate in the clearing and settlement of transactions in the yuan. Three issuers have sold yuan-denominated debt in Frankfurt since.

The PBOC and the European Central Bank agreed in October last year on a bilateral currency swap line to encourage greater use of the yuan in trade finance.

So far, only branches of Chinese banks have been appointed as clearing banks in the offshore market. Bank of China is the clearing bank for the yuan in Hong Kong, Macau and Taipei, while the mandate in Singapore went to Industrial and Commercial Bank of China.

The yuan overtook the euro in December to become the most used currency in global trade finance after the US dollar. Many analysts expect the yuan to become fully convertible in the next two to three years.

Separately, Canadian Finance Minister Joe Oliver said talks had opened between Ottawa and Beijing to establish a North American trading hub for the yuan in Toronto.