London to become first location outside Asia to have a Yuan clearing bank
As the Renminbi is finally rebounding somewhat from its recent slide against the US dollar we are seeing a very clear intention by UK authorities and the private sector, for London to become the main trading venue outside of Asia for Chinese currency transactions. According to a report on the Wall Street Journal’s blog, yesterday the International Finance Corporation has announced the issuance of a 1 billion Chinese Yuan denominated bond in London during the month of March.
The IFC is a World Bank’s arm and it stated that the effort is related to deepen the liquidity on the Chinese financial markets by providing access to them to foreign investors. Days before the event, UK’s Treasury Chief George Osborne has stated in a speech in Hong Kong that the government is in touch with authorities in Beijing to appoint a clearing bank for Renminbi transactions in London.
Meanwhile competition from the rest of Europe has intensified with Paris, Frankfurt and even Luxembourg all willing and able to jump into the fray. There is no doubt as to why there are so many financial hubs willing to take on CNH trading – volumes are only likely to grow in the coming years, and grow big.
The recent decline in Renminbi’s value has been attributed to attempts by the central bank to stimulate more two-way flows, an explainable position, since most of emerging markets currencies have fallen dramatically over the past 6-8 months. However we view claims that Chinese authorities are slowing their FX reform as a little farfetched – at this point in time Beijing doesn’t have much choice with its forex reform – it will go ahead and liberalization is still likely to come sooner than later.
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