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New agreement paves the way for the appointment of a clearing bank.
The Bank of England and the People’s Bank of China (PBoC) have agreed to sign a Memorandum of Understanding (MoU) on renminbi (RMB) clearing and settlement in London. The MoU will be signed in London on 31 March 2014 and will set out the cooperation between the Bank and PBoC relating to the operations of the RMB clearing and settlement service in London.
This decision further strengthens London’s position as the Western centre of renminbi trading. According to SWIFT data, 62 per cent of RMB payments outside of China take place in London, and London asset managers are the only ones in the West able to invest directly in Chinese stocks and shares in RMB.
The highly sought-after RMB bond issued by the International Finance Corporation in London earlier this month was the first benchmark bond by an international financial institution, and demonstrated the interest from international investors in London’s RMB markets.
Prime Minister David Cameron and President Xi discussed the co-operation between the two banks in a bilateral meeting in the margins of the Nuclear Security Summit in the Netherlands on 25 March 2014.
The UK was the first G7 country to agree a RMB swap line with the PBoC, and the agreement on clearing and settlement arrangements, the first outside Asia, is the logical next step to giving the international market in London the confidence to expand their RMB activities. A London clearing bank would complement the main clearing and settlement infrastructure in Hong Kong by supporting efficient transfer of funds within the Western time zone.
The Chancellor of the Exchequer, the Rt Hon George Osborne, MP, 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 renminbi. 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. This means jobs and investment in the future.