British treasury has announced it is joining hands with Hong Kong to transform London into a centre for the offshore trading of renminbi yuan, the official currency of China, in its bid to boost trade and investment ties with the world’s second largest economy.
“London is perfectly placed to act as a gateway for Asian banking and investment in Europe,” UK Chancellor George Osborne said in a speech at the Asia Financial Forum on Monday. He also urged countries to resist protectionist measures and reiterated London’s resolve to boost International Monetary Fund (IMF) funding and help expand its role in tackling global recession.
British bankers welcomed the announcement and said the plans could attract billions of pounds into the City.
The move comes at a time when rating agency Standard & Poor’s downgraded credit ratings of France and other eurozone countries. Britain has already urged the single currency unit to take further actions to restore confidence and reform the challenged structure. Many analysts believe London is trying to lessen its trade dependence on Europe and expand business and investment ties with emerging economies around the world, especially China.
“I believe that we can make Britain the home of Asian investment and Asian finance in Europe,” Osborne said, according to the text of his speech, which kicked off his official program during a trip to China and Japan.
The City, he insisted, was “uniquely placed to assist in the development of this exciting market” being the world’s largest centre for foreign exchange.
SETUP AND INSTALLATION
Britain got the Chinese government’s nod for London to become an offshore trading centre for the yuan last year.
UK finance ministry and the Hong Kong Monetary Authority (HKMA) reached an agreement to facilitate a private-sector forum to explore synergies, aimed at exploring market liquidity, clearing and settlement systems, and the development of new products denominated in yuan.
London would come in direct competition with other financial hubs like Singapore and Taipei, which are also vying to get a stake from the growing offshore yuan business. But all are expected to have to play second fiddle to Hong Kong as Chinese authorities push on with a series of initiatives to internationalise the currency.
The British Chancellor welcomed HKMA’s recent announcement of extending the operating hours of its yuan payments systems in order to better facilitate European transactions and making it easier for transactions in London to go smoothly.
Following Beijing’s relaxation of strict state fiscal controls, the yuan is on course to become a major, globally-accepted currency like the US dollar, gaining strength from China’s status as the world’s second biggest economy.
Chatham House, a London-based think tank, report forecasted that trade transactions settled in renminbi yuan would reach around a trillion dollars by 2020.