The Bank of England and the People’s Bank of China have signed a three-year currency swap agreement to boost trade between the UK and China.
The deal, worth £21 billion/RMB 200 billion, will support the UK’s progress in becoming a trading centre for the renminbi. Signed by PBOC governor, Zhou Xiaochuan, and BoE governor, Mervyn King, last week, the swap line, “may be used to promote bilateral trade between the two countries and to support domestic financial stability should market conditions warrant.”
King says, “It is a testament to the outstanding working relationships between the Bank of England and the People’s Bank of China that this swap line has now been signed. The establishment of a sterling/renminbi swap line will support UK domestic financial stability. In the unlikely event that a generalised shortage of offshore renminbi liquidity emerges, the Bank will have the capability to facilitate renminbi liquidity to eligible institutions in the UK.”
London currently sits as the second largest renminbi trading market, after Hong Kong, and ahead of Singapore and Taiwan, according to the latest Standard Chartered’s Renminbi Globalisation Index (RGI) (Squawkbox 16 June 2013). The RGI is the first industry benchmark to track the progress of RMB business activity, demonstrating trends, size and levels of offshore activity as adoption of the RMB continues to grow.
The most recent index results indicate that London’s market share has been boosted due to cross-border payments of late.
Such agreements see central banks swap currencies and can be used by organisation to settle trades in local currencies. According to a BBC News report, British banks currently hold RMB 35 billion in deposits.