A slower yuan appreciation might dampen investors' interest in the currency but would not affect London's ambitious plans to develop itself as a leading offshore yuan centre.
Mark Boleat, chairman of the policy and resources committee of the City of London, said the local government would continue to promote the use of yuan by domestic companies and investors.
"London is the world's largest foreign-exchange trading centre. We would definitely want to see sufficient liquidity of RMB here so that people doing business with China can easily buy or sell the currency here to settle trade with their Chinese trading partners," Boleat told the South China Morning Post in an exclusive interview in his Guildhall office in the heart of the city.
Britain has been among those most enthusiastically promoting the yuan business. In the past two years, several senior British government representatives have met mainland officials to discuss what role London could play in offshore yuan trading.
A working group formed by leading Hong Kong and British banks, including HSBC, Standard Chartered Bank, Industrial and Commercial Bank of China and Bank of China, was set up in January to iron out the technical issues involved in promoting the yuan business in Hong Kong and London.
"More such meetings will be held [this month], which will be attended by senior ministers. This shows the UK government fully supports London's goal to be an offshore RMB trading centre," Boleat said.
China is yet to allow full convertibility of the yuan but since mid-2009, it has gradually relaxed rules to let foreign companies use the currency to settle trade or make investments, as part of plans to develop the yuan into an international currency.
"While we are not sure when the renminbi will be fully convertible, the direction seems irreversible," he said.
The offshore yuan market has been growing rapidly since 2009 as many like to hold yuan deposits or yuan investment products as a way of betting on its appreciation.
The yuan has risen almost 30 per cent against the US dollar since 2004 but the appreciation has slowed this year because of concerns over the mainland's growth engine losing steam.
Boleat said a slower yuan appreciation is healthy.
"Previously the yuan moved only one way. Now it is better priced by the market, which is a much healthier trend."
He said London now conducts 28 per cent of the yuan trade settlement worldwide, next only to Hong Kong. As of the end of April, yuan deposits in the city had reached 109 billion yuan.
Though still lagging Hong Kong's 600 billion yuan, it is the second-biggest yuan pool outside the mainland.
More British companies with ties to Chinese firms would like to settle trade in yuan, he said.
"Typically, British firms mainly settle trades with Chinese companies in US dollars.
"But since 2009 more and more companies are beginning to show a preference for yuan."
He said some firms believe settling trade in yuan can save them up to 2 per cent in costs compared with settlement in dollars. The reason is that some Chinese exporters prefer to be paid in yuan and would offer a discount for the same, Boleat said.
London is, however, far behind Hong Kong in terms of issuing yuan-denominated bonds. While hundreds of so-called dim sum bonds have been issued in Hong Kong, raising 110 billion yuan last year, London's yuan bond market only began this year with yuan bond issues by HSBC and Australia and New Zealand Banking.
HSBC issued two billion yuan of bonds in May. China Construction Bank is planning to issue yuan bonds as well.
Boleat said it would take London some time to develop yuan investment products.
Looking ahead, he said, the development of London's yuan business would depend on how far Beijing goes in liberalising the currency.
"We believe the leadership change in China won't change the policy of liberalising the RMB, which is going to continue."
An advantage for London as a leading offshore yuan centre, he said, is that the city is the world's biggest foreign-exchange trading centre and is also the largest offshore US dollar market.
London is also home to international banks such as HSBC and Standard Chartered Bank, with extensive networks that are well-equipped to meet the yuan needs of global customers.
"The banks in Canada, France or Australia are more focused on domestic clients. As such, the yuan services they can offer are somewhat different from those in London and Hong Kong, where banks can offer international RMB services," Boleat said.