Foreign Exchange: London seeks to be top renminbi trading centre

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UK and Hong Kong sign deal; London in leading position

The push for London to become a primary trading hub for the renminbi continues after UK chancellor George Osborne signed a deal with Hong Kong, aimed at fostering greater cooperation in the drive to globalize the currency. The agreement follows last summer’s landmark accord, in which the UK and Chinese governments welcomed the development of the offshore renminbi market in London. In a move that further distances London from European calls for a financial transactions tax, the Hong Kong Monetary Authority (HKMA) and the UK Treasury on January 16 announced the launch of a joint private-sector forum aimed at promoting the development of offshore renminbi business. The forum will focus on enhancing links between Hong Kong and London, specifically regarding clearing and settlement systems, market liquidity and the development of new financial products denominated in the renminbi. The forum will meet twice a year, with the first meeting to be held in Hong Kong in May. It will comprise representatives from Hong Kong and London banks, including HSBC, Standard Chartered, Bank of China (BOC), Deutsche Bank and Barclays. The UK government believes the deal will help achieve its aim for London to complement Hong Kong in becoming a primary renminbi trading centre. “London and Hong Kong are uniquely placed to assist in the development of this exciting market, and, further to last summer’s agreement, I am delighted that the financial services industries in both financial centres are working together to achieve this goal,” says Osborne. Aside from the headline-grabbing announcement from the HKMA and UK government, the most important news set to bolster London’s bid to become a renminbi trading centre in recent weeks has been the announcement from the BOC that it would extend daily renminbi settlement for all offshore transactions. The BOC said settlement hours – between 00.00 and 10.30 GMT – were to be extended by five hours to 15.30 GMT to cover regular business hours for China’s key trading partners to encourage more banks in Europe and the US to use the service. The move, expected in June, will give institutions in Europe and beyond an extended period to settle same-day renminbi transactions. None of the measures announced is a precursor to establishing London as an offshore clearing centre for renminbi. However, that should not be an impediment to growth. London is dominant in dollar-based transactions, even though there is not a dollar clearer outside the US – the Federal Reserve simply provides for trading settlement 23 hours a day. London is already the leading centre for offshore renminbi trading outside of Hong Kong and mainland China, according to figures from Swift, the financial-messaging platform. According to data from Swift’s RMB Tracker, outside Hong Kong and mainland China, London accounted for 30% of renminbi payments and 46% of renminbi FX transactions in the fourth quarter of 2011. That placed London on a par with Singapore in renminbi payments and first in FX. Furthermore, London’s dominance outside of these two regions is increasing. In renminbi payments, Singapore started strongly early in 2011, but lost ground and its share fell from 52.9% in the first quarter to 30.6% in the fourth quarter. In contrast, the UK’s share rose from 22.1% in the first quarter to 30.0% in the fourth.

In renminbi FX, London maintained a healthy lead in market share outside Hong Kong and mainland China throughout the year.