UK given access to onshore Yuan market as Chinese FX trading rises

Yuan now the 9th most actively traded currency in the world, up from 17th three years ago.

Joining the exclusive club members – Hong Kong and Taiwan – in one of the boldest moves of policy makers in mainland China in a path to internationalization of its currency, the UK has become the third country to be allowed access to mainland China markets.

The Chinese central bank seems to confirm its commitment to establishing the yuan as one of the world’s dominant currencies. The next move comes to British shores, as China is now allowing UK-based investors to participate to the tune of 80 bln yuan ($13.1 bln) in local stocks, bonds and money market instruments. Chancellor of the exchequer George Osborne said in a briefing yesterday that there will be a direct market making mechanism for trading the Chinese yuan against sterling. Up until now this had to be done through the US dollar which resulted in higher transaction costs for investors.

In a complementary announcement the Industrial and Commercial Bank of China (ICBC) will issue the first renminbi denominated bond by a mainland China headquartered bank. It seems that the trade mission of Mr. Osborne has paid off rather well for both sides, as the UK has gained an exclusivity in CNY dealings and China is showing another sign on commitment to internationalization of its currency.

Overall, Yuan trading has become a lot more interesting since Chinese authorities increased that daily band in which the Yuan is allowed to float versus the other major currencies. We earlier reported that the same phenomenon has increased awareness of currencies among China-based retail FX traders, whose trading is up more than 30% this year.

Singapore is expected to be the next in line with a similar agreement having been negotiated in recent months. The chinese yuan is fast pacing to becoming a free floating currency yet some steps remain to be activated by Chinese policymakers. The next logical one would be to liberalise the deposit rate, as the lending rate has already been free floated by the PBOC in July. This could happen through an introduction of CDs (Certificate of Deposit) later this year and should be followed by establishing a deposit insurance scheme, hence removing controls over deposit rates.

Looks like the renminbi is on an unavoidable path to becoming the next power player in the FX markets all over the globe.

We sourced an article from Bloomberg for this article.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

Read Also: