London calling to the Chinese renminbi
Standard Chartered and Agricultural Bank of China have launched Renminbi-denominated clearing services in the UK in a deal that reflects the ongoing internationalisation of the currency, which has been growing since it was first introduced to foreign investors in 2007.
The RMB is the official currency of China. Since July 2010, is has been theoretically possible for corporates to settle in RMB anywhere in the world, but liquidity has been an issue, though it is the eighth-most traded currency in the world according to Swift, with particular volumes recorded in Hong Kong, Singapore and London.
Through the deal between ABC and Standard Chartered, financial institutions and corporates will be able to execute RMB transactions in London. That could be useful for trading firms looking to access the Chinese market, as well as corporates doing business in the country. The arrival of RMB clearing services in London will also be an obvious boost to the city’s status as an offshore centre.
“ABC will inject sufficient RMB liquidity into the London market,” said Zhang Yun, president of ABC. “Together with Standard Chartered, we will support Chinese companies operating in the UK with a package of cross-border financial solutions. We will provide comprehensive trade, investment and financing services in London and promote the cross-border use of RMB .”
The relationship between ABC and Standard Chartered is not entirely new. In July 2010, Standard Chartered invested in ABC’s H-Share IPO and acquired $500 million in H-shares. According to the bank, the current deal may help to spur more development in RMB services in areas such as trade finance, global cash management, asset management and bond settlement.
“London’s position as a leading international centre is enhanced by the ability to offer onshore clearing services that allow on-demand access to settle RMB denominated services within the London time zone,” said Peter Sands, group chief executive at Standard Chartered. “The opportunity to boost RMB liquidity in London could be used to fund large investment projects and support the development of other financial activities as the renminbi continues to internationalise.”
The rise of the RMB has also encouraged initiatives elsewhere in Europe. In Germany, Deutsche Börse has just signed a deal with Bank of China, in which the two parties will “explore potential cooperation” in China and in Europe. The stated intention of the two parties is to develop cross-border business between China and the European Union. As part of the plan, Bank of China’s branch in Frankfurt is due to participate in the German exchange group’s market.
“In the light of continuous fast internationalisation of the RMB , the building-up of a strategic co-operation between both parties will lead to a win-win situation,” said Tian Guoli, chairman of the Bank of China.