The government announced today (12 September), as part of the conclusion of the Economic and Financial Dialogue (EFD) with China, that it intends to issue the world’s first non-Chinese sovereign offshore renminbi bond and the proceeds will be used to finance the UK government’s reserves of foreign currency.
The government is taking these steps in recognition of the increasingly prominent role that renminbi is playing in the global economy and financial markets, including as a potential future reserve currency.
The bond is intended to be a one-off issuance, with the benefit of contributing liquidity to the small but fast-growing renminbi offshore market and attracting other market players in both the private and official sectors.
The government intends to issue at benchmark size.
The issuance is intended to proceed in the coming weeks and months subject to market conditions.
The bond is expected to see strong demand and pricing is expected to reflect the UK government’s creditworthiness.
The proceeds will be used to finance the UK’s reserves held in the government’s Exchange Equalisation Account, which include financial assets denominated in foreign currencies, gold and International Monetary Fund Special Drawing Rights. In particular, the proceeds are expected to be reinvested in the renminbi offshore market.
This action further strengthens the economic and financial relations between the UK and China, supporting the internationalisation of China’s currency, while also further enhancing London’s position as a global financial centre.
The government continues to meet its domestic financing requirements entirely in sterling, consistent with the debt management objective to minimise the costs of meeting the government’s financing needs, subject to risk.
The Bank of England will act as HM Treasury’s agent in managing the issuance of the renminbi bond.
The Bank of England invites those banks that have been part of a syndicate for multiple offshore renminbi bond issuances listed on a market in the European Union and Switzerland in the 12 full calendar months prior to this announcement to bid to act as a member of the syndicate. Such banks should email the Bank by 17th September 2014.