RMB growth benefits London
Updated: 2015-12-04 08:21
By Cecily Liu(China Daily Europe)
While City facilitated use of yuan, worldwide expansion of the currency reinforces City's importance in international finance
The speed at which renminbi activities are accelerating is increasingly important for the global financial center of London, and City of London policy chairman Mark Boleat has witnessed the progress from the beginning.
"If we go back a couple of years, nobody did anything in the renminbi. There was a little bit of trade. It was a currency that was there (but) nobody in the Western world thought about using it unless they had to," says Boleat, who in 2012 became policy chairman of the local government organization responsible for London's financial district.
City of London Policy Chairman Mark Boleat says renminbi business is very important to London. Provided to China Daily
"We now have a position that is changed dramatically. It is widely used to finance trade, freely used to finance transactions. There are many renminbi bonds issued in England, and more institutions are seeking to hold the renminbi," Boleat says.
As of the end of June last year, total deposits in London reached a new high of 25.4 billion yuan ($3.97 billion, 3.75 billion euros), a 74 percent increase compared with 14.6 billion yuan in December 2013, according to the latest City of London survey on renminbi volumes.
Foreign exchange transactions have grown particularly rapidly, with daily spot trading in the first half of 2014 increasing by 160 percent over the level of 2013 and overall foreign exchange activity increasing by 116 percent. Spot foreign exchange trading per day in the first half of 2014 was almost 20 times the level of the first of these surveys in 2011.
"Renminbi businesses are very important to London. In volume terms they are still small in relation to overall financial activities, but it helps to keep London as a leading financial center, so that businesses know they have the choice to raise money in renminbi in London," Boleat says.
London's drive to become an offshore renminbi center started in September 2011, when the then Chinese vice-premier, Wang Qishan, meeting with British Chancellor of the Exchequer George Osborne, welcomed private sector initiatives for the development of an offshore renminbi market in London.
Since then Boleat's staff has been at the forefront of the "private sector-led initiative" in devising a workable plan to make the City's grand ambition technically possible, he says. They set up a working group comprised of both Chinese and Western banks to give advice on developing the City's infrastructure for renminbi offshore activities, which has helped many Chinese banks to grow quickly there.
In 2013, the Bank of England established a currency swap line with the People's Bank of China, becoming the first G7 country to do so. The currency swap, in which central banks hold each other's currency in order to provide private sector liquidity in time of need, gave a big boost to market participants' confidence in renminbi transactions.
Last year, another milestone was reached as China Construction Bank was appointed a renminbi clearing bank for London. Since a clearing bank is able to settle renminbi transactions directly with the People's Bank of China, this further facilitated renminbi transaction flows in London.
Boleat says the growth of renminbi activities in London is both an endorsement of London's status as a global financial center, and also demonstrates the speed of the renminbi's internationalization.
Boleat says the increasing use of renminbi abroad is beneficial for the global economy since "there is a genuine wish to reduce reliance on the dollar". The International Monetary Fund's decision to include it in the special drawing rights basket of reserve currencies is a recognition of the progress the renminbi has made on its internationalization journey.
"It's a symbol of where the currency is already, and will give a push to where the currency will be used in trade. The decision was not a surprise for us, as the question was only just a matter of when," he says.
However, it is also important to note that renminbi internationalization is still in its early days and in absolute volume terms the renminbi "is not widely traded or widely held, so there's a long way to go before it can compare with the dollar", he says.
He believes that although renminbi internationalization is expected to progress regardless of the IMF's decision, admission of the currency to the SDR basket will help build confidence in the long-term nature of the trend of wider international renminbi usage, encourage more central banks to hold the renminbi as part of their reserves and, by extension, highlight the availability and demand for renminbi-denominated assets.
"The world can benefit from having multiple reserve currencies, and with the renminbi playing an increasingly important role as a trade and investment currency, it is already becoming well integrated within the international monetary system," says Boleat.
(China Daily European Weekly 12/04/2015 page5)