London, eurozone set to benefit from increased RMB trade

London and the eurozone look set to benefit in the future from increased trade in yuan, as figures Thursday show yet another monthly increase in its use as a global currency.

On June 19, the London branch of the China Construction Bank (CCB) was named as the clearing bank for offshore yuan transactions in London, and on the same day the Bank of China's (BOC) branch in Frankfurt became the first eurozone financial institution to gain the same status.

Figures released Thursday for May show that both financial centers look likely to benefit from a global trend that sees the yuan increasingly used as a currency for international payment.

SWIFT yuan tracker showed that in May 1.47 percent of global payments were in yuan, a tiny amount compared to the global total but up from 1.43 percent in April and a performance that bucked the May trend which saw all currencies decrease 0.7 percent in value of trade.

The increasing take-up of the yuan as an international currency is underlined in the year-on-year figures -- in May 2013, 0.63 percent of customer initiated and institutional payments was in yuan, less than half the 1.47 percent now.

The establishment of yuan clearing banks in London and Frankfurt is likely to further boost the take-up of the yuan.

Astrid Thorsen, market manager at SWIFT, told Xinhua, "You can expect that the different financial institutions that currently have accounts with Hong Kong have to follow the rules and the different timezones and so on, may want to prefer to set up new accounts now with the two clearing banks that are re-located in the region."

There are clear and obvious benefits to the establishment of yuan clearing banks. Thorsen said the two new locations put banks and customers closer together allowing greater understanding of needs.

"Banks will be better able to adapt their offering and provide timely response to their corporate customers. That is really getting closer to the market," she said.

Thorsen added, "You really see London and Frankfurt willing to position themselves and maybe offer additional products beyond the clearing activity going forward. Yes, it is going to boost the yuan."

She continued, "With an expansion in trade with Asian countries more and more corporates may be willing to do business in yuan, maybe a substitution from other currencies like the US dollar."

Strengths of London

Thorsen said that London is one of the "really major FX trading centers, that is one of their big big strengths".

In addition, London could point to its strength in the securities market, said Thorsen. She anticipated that there may be more financial products for investment starting to build up in yuan.

Last week results of a quantitative survey for the City of London Corporation carried out by Bourse Consult showed strong growth in 2013 in the use of yuan in trade finance by corporations in London.

The total amount of yuan denominated trade financing was nearly 43 billion yuan, a 10 percent increase on 2012, with the most significant growth seen in export financing.

In terms of volume, the Bourse Consult report found that London's strength was in foreign exchange trading, with a 140 percent increase over 2012 to reach an average daily value of $18.7 billion on trading in deliverable products, which overtook non-deliverable in the majority market share for the first time as result of greater yuan liquidity.

But it's not just the amounts which are increasing, it is also the share of the trade that is carried out in yuan that is increasing, as the latest SWIFT figures show.

SWIFT's May figures show the usage of yuan in international trades between China and Hong Kong and the European non-eurozone area, which includes London, increased from 25 percent of trades in May 2013 to 38 percent of trades.

For the eurozone areas over the same period, a similar tale of increased volumes is told -- yuan usage up from 19 percent in May 2013 to 29 percent now.

This looks set to increase over the coming year. Thorsen commented that the two new yuan clearing banks would increase "speed and attractiveness" of yuan trade.