The Bank of England (BoE) and the People’s Bank of China (PBoC) plan to sign a deal on a three-year renminbi (RMB) – sterling currency swap agreement to encourage trade and investment between the UK and China.
The BoE’s outgoing governor, Mervyn King, met the PboC’s governor, Zhou Xiaochuan, on a trip to China late last week, at which they agreed to try to sign a swap agreement soon to strengthen the UK’s efforts to establish itself as a leading offshore hub for RMB trading.
A statement issued by the BoE said that: “The arrangement would be used to finance trade and direct investment between the two countries and to support domestic financial stability should market conditions warrant.” China already has currency swap arrangements with a number of countries, including Australia, Malaysia and South Korea.
“London is growing rapidly as a centre for RMB business,” King added and the establishment of a sterling-RMB swap line would support UK domestic financial stability.
He added that he swap would mean that if there were a shortage of RMB outside China, the BoE would be able to provide liquidity to UK banks.
According to the UK chancellor, George Osborne, the agreement “cements London as the western hub for the fast-growing RMB market”.
“It is another sign that, in the global race, Britain is seen as open for business by emerging and established markets alike,” he added. “We have already seen evidence in 2013 of a significant increase in RMB trade in London.”
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