Agreement for yuan clearing bank signed

Offshore yuan activities are accelerating in London, aided by new announcements on Tuesday regarding the appointment of a yuan clearing bank in London and an agreement for direct yuan-pound trading.[Special coverage]

China Construction Bank will become London's official yuan clearing bank. The two countries have also agreed to set up direct pound-yuan trading, making British pound one of the few currencies in the world to have direct trading with the yuan.

Andrew Carmichael, a partner at Linklaters law firm in London, said the appointment of a yuan clearing bank in London shows that London has kept its position in the race to become Europe's leading offshore yuan hub.

"It is important for London to have a yuan clearing bank because it allows clearing to be carried out in the same time zone and from a technical point of view is easier to use," Carmichael said.

Without an official clearing bank, clearing activities can still be completed by internal cooperation between individual banks or by use of other clearing systems such as the one in Hong Kong. However, such channels would require more work, time differences and remoteness from the banks that provide the service, he said.

Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, said direct trading between the yuan and pound would help to accelerate the development of London's offshore yuan market.

"This change will allow London to trade more actively in yuan-denominated products," Derrick said.

Derrick said the announcement shows the commitment of the Chinese government to liberalize its currency and also is an affirmation of London's leading global position as a currency and financial center.

Trade finance transactions using the Chinese currency totaled 27.94 billion yuan ($4.48 billion) in the first half of last year, up from 13.8 billion yuan a year earlier, the city of London said. The daily average trading volume of renminbi-related foreign exchange products almost doubled, to $22.3 billion.

Another key milestone for London's yuan activities, expected to be announced soon, is the setting up of branches in London by Chinese banks.

In recent years, several Chinese banks have lobbied to set up branches in London, which will give them far greater lending and financing capacities compared with their current subsidiary status.

Industry insiders said several Chinese banks are due to receive branch licenses soon, and this development will significantly boost the amount of yuan activities in London because branches will allow Chinese banks to better accommodate London's growing demand for yuan trade and investment activities.

Huo Rongrong, head of renminbi business development at HSBC Europe, said she is pleased to see that some Chinese banks are setting up their branch licenses in London.

"This is a strong sign of commitment for the UK market, and the branch licenses will further help Chinese banks as they expand their UK products and service offerings, especially for those Chinese clients who have already established their UK and European businesses," Huo said.