Bank of England must promote RMB trading, warns Chinese official

The Bank of England should engage in greater dialogue and co-operation with Chinese authorities to promote the internationalisation of renminbi, including setting up a swap line with the People’s Bank of China (PBoC), a senior Chinese official has warned.

Speaking at an event hosted by the City of London Corporation, Xia Bin, a former member of the monetary policy committee of the PBoC and now director of the Finance Institute of the State Council Development Research Center, and counselor at the State Council of China, said more needs to be done to promote London as a centre for offshore renminbi trading.

“Market participants, institutions and investors should pay more attention to this market – the early birds will have a bigger share of the market. The Bank of England should have more talk, discussions and co-operation with the Chinese government regarding the currency. [A swap agreement] is important for market confidence – through that we can promote an offshore market. Signing the agreement is not only important for the Chinese central government, but it is also important for the economies of both of our countries,” said Xia, speaking through a translator.

The warning comes almost eight months after the UK government launched a high-profile initiative to make London a centre for offshore renminbi business. Even at the launch event in April, attended by UK chancellor George Osborne and several banking chiefs, questions were raised about the Bank of England’s role in the initiative.

After the second meeting of the London-Hong Kong Renminbi Forum in London this week, convening representatives from 10 banks and more than 60 corporations across Europe, and a meeting of the City of London Advisory Council for China, of which Xia is a member, the role of the Bank of England remains a key issue.

But Mark Boleat, policy chairman of the City of London Corporation, warned that excessive focus on the opening of a swap line between London and China was inappropriate. “Concentrating on the swap is not the most important factor in the development of the market. The Bank of England’s position is that, if it is necessary, it will consider it, which I think is a perfectly reasonable position,” he said.

“The Bank of England has been and remains fully engaged with the City of London initiative to develop London as a centre of renminbi trading and is in regular dialogue with the PBoC on a range of issues,” says a spokesman for the Bank of England. “Should it become appropriate to establish a swap line with the PBoC, the Bank would have no hesitation in doing so in the future.”

According to Xia, the internationalisation of renminbi will be a slow process, and even by 2020, the currency may still account for only a small proportion of global reserves. But London, he said, could be even better positioned than Hong Kong to become a centre for offshore renminbi trading.

“London is the largest offshore centre in the world; it has the largest FX market and insurance market, so if we look at all those channels – sales channels, marketing channels, customers, clients – those things are not as advantageous to Hong Kong. London also has the advantages of time difference, so I think London has huge potential for developing renminbi business, but this potential has not yet been realised,” said Xia.

 

This article was first published on FX Week

 

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