London Gets Nod as International Center for RMB Trading
Oct. 16 – Investors in the United Kingdom will now have greater access to China’s financial markets thanks a deal reached this week between the two countries to allow British participation in China’s stock and bond markets in exchange for eased regulations governing Chinese banks looking to establish operations in the UK’s financial center.
According to officials in Beijing, British investors will now be able to purchase up to RMB80 billion (US$13.1 billion) in Chinese financial securities, which have largely been off-limits to international investors in the past.
The agreement was announced following the U.K. Chancellor of the Exchequer George Osborne’s visit to China this week.
The deal, designed to encourage further liberalization of the Chinese currency, will also allow direct exchange between the RMB and sterling, reducing the financial transaction costs for UK investors who previously had to exchange the sterling to U.S. dollars before trading for the RMB. Plans to issue a RMB-denominated bond are also in the works, according to Osborne.
“The Chinese currency, the renminbi, is not terribly well known in Britain at the moment. But over my lifetime I think it’s going to become almost as familiar as the dollar, and I want British businesses involved in trading it, in investing it,” said Chancellor Osborne.
Following their decision to liberalize the RMB in recent years, the Chinese government has established several currency swap agreements with financial centers throughout the world, including in Singapore and Frankfurt. Despite this, London remains the major player in offshore RMB exchange, accounting for 62 percent of trading activity with the RMB outside of China and Hong Kong, according to the Society of Worldwide Interbank Financial Telecommunications (SWIFT).
“As we have noted elsewhere, the global acceptance of the RMB as an alternative to the U.S. dollar is now gaining some traction, especially in the use of direct trading that negates the need to transact via the dollar completely,” comments Chris Devonshire-Ellis of Dezan Shira & Associates. “China has already sealed agreements with other major currencies such as the Russian ruble, the Indonesian rupiah, and the Brazilian real, and this agreement with the City of London is a major step forward in the internalization of the RMB, at least in institutional terms.”
Both the United Kingdom and China have sought increased economic cooperation as trade between the nations continues to grow, reaching US$63 billion in 2012, an increase of 7.6 percent over the previous year.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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