Britain Reaches Deal to Clear Trades in Chinese Currency

LONDON - The Bank of England and the People’s Bank of China reached an agreement on Wednesday to allow clearing on renminbi trades in London, the first such arrangement outside of Asia and another victory for the British government in its efforts to make London a leading Western hub for Chinese trading.

The central banks will sign a memorandum of understanding at the end of the month, paving the way for London to increase its renminbi, or yuan, trading. At that time, the two central banks will work together to designate a bank to do the clearing and settlement.

“Connecting Britain to the fastest growing parts of the world is central to our economic plan,” said George Osborne, the chancellor of the Exchequer. “It’s why I’ve put such government effort over the last three years into making sure we’re the leading Western center for trading in the Chinese currency.”

According to Swift, the banking payments provider, 62 percent of renminbi payments outside of China take place in London. Hong Kong does about twice as much trading, and London is eager to increase its share.

London asset managers are the only ones in the West able to invest directly in Chinese stocks and shares in renminbi through the Renminbi Qualified Financial Institutional Investor program, put in place last year.

In October 2013, during high-level trade talks, Prime Minister David Cameron made clear his appetite for Chinese investment.

Calling the British and Chinese economies “deeply complementary,” he said, “If you are investing in Britain, invest more.” He later added, “No country in the world is more open to Chinese investment than the U.K.”

Mr. Cameron and China’s president, Xi Jinping, discussed the cooperation between the two banks in a bilateral meeting on the sidelines of a nuclear security gathering in the Netherlands this week, the British Treasury said in a statement.

China designated Hong Kong as its first offshore trading center for its currency in 2009. Since then, major cities have vied to attract renminbi trading, just as they have sought Chinese investment and trade. The Treasury emphasized that a London clearing bank would complement the main clearing and settlement infrastructure in Hong Kong “by supporting efficient transfer of funds within the Western time zone.”