People's Bank of China and Bank of England agree to make London a Renminbi currency dealing hub

The two central banks are due to sign a memorandum of understanding (MoU) next Monday, which will outline settlement and clearing arrangements for the Renminbi (RMB), or yuan, in London.  It is expected that a London clearing bank for RMB will be appointed soon after the MoU is signed, to allow efficient transfer of funds within the Western time zone.

A statement by the UK HM Treasury said that the agreement on clearing and settlement arrangements is the first of its kind for the RMB outside Asia and "further strengthens London’s position as the Western centre of RMB trading."  A total of 62 per cent of RMB payments outside of China currently take place in London, according to SWIFT data, the Treasury said.

The UK prime minister David Cameron discussed the cooperation with Chinese President Xi earlier this week on the sidelines of a nuclear security summit which both leaders attended in the Netherlands.

Announcing the MoU, the UK Chancellor of the Exchequer George Osborne, who is the UK's finance minister, said: "Connecting Britain to the fastest growing parts of the world is central to our economic plan. It’s why I’ve put such government effort over the last three years into making sure we’re the leading western centre for trading in the Chinese currency, the RMB. That effort has paid off - and today’s agreement, the first outside Asia on clearing and settlement arrangements, is another major step forward. It is great news and I look forward to the appointment of a clearing bank soon.

“Of course, other Western countries will follow, but London now has the critical mass of infrastructure, helping to put Britain at the front of the global race," said Osborne. "This means jobs and investment in the future.”

HM treasury said that the cooperation between the Bank of England and the PBOC is "the logical next step to giving the international market in London the confidence to expand their RMB activities.  Recently the International Finance Corporation, which is the private sector arm of the World Bank, issued a 1 billion RMB bond in London - the first by an international financial institution, the BBC said.  And London asset managers are currently the only Western managers who are able to invest directlyin Chinese stocks and shares, following an agreement with Beijing last year. The UK and Chinese central banks also signed a three-year currency swap arrangement worth 200 billion RMB. This allows the two states to swap currencies and firms from the UK and China to settle trade in local currencies rather than in US dollars, the BBC said.