Luxembourg vies to be RMB base

Yuan settlement center to facilitate trade, investment

Luxembourg vows to be the leading offshore yuan trading center in Europe and serve as a gateway for Chinese financial institutions to gain access to the European market, said the finance minister of Luxembourg at a press conference in Beijing on Tuesday.

"We are already the No.1 spot in Europe for the internationalization of the yuan, even prior to receipt of the status by the peering [European] countries," said Pierre Gramegna, finance minister of Luxembourg, noting that the market itself has already chosen Luxembourg to do a lot of the transactions in yuan.

Luxembourg is the world's second-largest base after the US for cross-border investment funds, hosting over 1,000 investment funds with assets of about 2.5 trillion euros ($3.42 trillion), he said.

China Merchants Bank has received the green light from Chinese authorities to set up a branch in Luxembourg, becoming the fourth Chinese bank after Bank of China (BOC), China Construction Bank (CCB) and Industrial and Commercial Bank of China (ICBC), the minister told the Global Times.

BOC Luxembourg branch listed its first offshore yuan-denominated bond on the Luxembourg Stock Exchange with the value of 1.5 billion yuan ($244 million) in May.

With rapid economic growth and accumulation of wealth in China, there will be growing demand for outbound investment, said Wang Qing, president and partner of Shanghai Chongyang Investment Management Co.

Since Luxembourg is the gateway to the European market, setting up the offshore yuan clearing center there will make it more convenient for Chinese companies and investors to conduct trade and investment, Wang told the Global Times.

Cross-border yuan transactions totaled 51.68 billion yuan in Luxembourg for the first five months of this year, 1.8 times the transaction value from a year earlier, or 1.4 percent of cross-border yuan transactions worldwide, indicating greater growth opportunities, Guo Jianwei, deputy director-general of the Monetary Policy Department of the People's Bank of China, said at the press conference.

China has the world's largest pile of foreign currency reserves worth nearly $4 trillion by the end of the first quarter of this year. The huge reserves are mainly invested in low-yield US government and corporate bonds, making it difficult to manage and maintain the value.

In a bid to solve the problems in foreign reserve management, the country has been trying to turn the yuan into a global reserve currency for trading and investment, like the dollar and euro.

Luxembourg's move is the latest volley in a race to win a major share of cross-border yuan transactions after China stepped up its efforts to accelerate internationalization of its currency by designating yuan clearing centers on the European continent.