|Donald Workman, executive chairman, RBS Asia Pacific|
At present, UK companies are reluctant to adopt RMB as a functional currency because of a lack of knowledge of the market, because of confusion around unfamiliar Chinese regulations and, in particular, because of the lack of market liquidity. They prefer to use foreign exchange, swapping sterling as needed to complete transactions and payments. The fact that 98 per cent of RMB payments made in London in 2012 were for settling institutional transfers rather than trade, according to SWIFT data, shows how UK businesses need the reassurance that the swap line can provide.
Just as importantly, the swap line means UK banks can seek RMB funding from the BofE during their own time zone, without waiting for Asian markets to open.
There is also a good precedent of a swap line being used. Earlier this year, the Bank of Korea activated its USD59 billion line, accessing CNY62 million to help domestic traders make RMB payments.Like any good insurance policy, we sincerely hope that the UK will never actually need the swap line agreement, but it is comforting to know it is there. The agreement is also recognition of the importance of London, among European cities, in the internationalisation of the RMB and is another critical step on the road to designating London as an offshore centre for RMB trading.
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