Shanghai free-trade zone

Shanghai yuan role 'no threat' to London

The free-trade zone will increase transaction volumes in offshore yuan hubs such as the UK capital, lord mayor of the city's finance district says

PUBLISHED : Tuesday, 24 September, 2013, 12:00am
UPDATED : Monday, 27 June, 2016, 11:50am

The experiment in full yuan convertibility through the new free-trade zone in Shanghai will boost transaction volumes in offshore foreign exchange centres like London and Hong Kong that have been accumulating yuan deposits, not render them redundant, according to the lord mayor of the City of London.

Roger Gifford, visiting Hong Kong to promote London's competitiveness in global finance, said anything that made the yuan easier to trade would benefit existing offshore deposit centres.

"I do not consider Shanghai's new free-trade zone experiment a threat to London, Hong Kong or any other city," he said. "The more centres to trade the yuan, the bigger the global pie of the yuan business. The experiment in Shanghai will help boost international investors' interest in trading the currency and benefit all offshore yuan trading centres."

The decision to allow Shanghai a freer yuan flow has led some analysts to warn the end may be nigh for Hong Kong and other offshore yuan hubs.

Gifford rejects such concerns, saying the experiment in free convertibility shows China is keen to move in the direction of a freely convertible currency in the longer term, which will only boost interest in the yuan.

"China is now the world's second-largest economy. We'll naturally see it become one of the most traded currencies worldwide. How far the yuan trading can go will depend on the speed of the liberalisation of the currency and what the Chinese authority wants."

Gifford said London, as an international foreign exchange trading centre, would be a major centre of yuan business.

London last year saw a 100 per cent increase in yuan-denominated trade financing to 33.6 billion yuan (HK$42.3 billion), with a substantial increase in the volumes of a range of yuan-deliverable instruments. Spot yuan trading volumes increased by 240 per cent over 2011, reaching a daily average of US$2.5 billion. The volume of yuan-denominated letters of credit and other loan guarantees grew 13 times to 4.7 billion yuan.

He said Hong Kong and London would partner in developing the offshore yuan business as many banks operated in both cities, but admitted they faced competition from other hubs such as Paris, Sydney, Tokyo, Taipei and Singapore, all of which want a share of the yuan pie.

In June, the People's Bank of China and the Bank of England agreed to a three-year currency swap line of up to 200 billion yuan. China has had yuan arrangements with Australia and Singapore, among others.

"There is competition and this is why London has to prove it is the best and the most efficient in yuan trading. But the more markets trade the yuan, the more there will be yuan products and trading activities worldwide, adding depth to the trading of the currency." Gifford said.