Capital in position to benefit from RMB growth

The rising dominance of the renminbi in global markets offers London a huge opportunity to become a vital offshore trading hub for the currency, says one Bank of China (BOC) official, as banks and businesses cash in on the growing Chinese economy.

Speaking at yesterday’s EMFX Trading Summit in London, BOC manager Wenjian Fang said London is well-placed to benefit from its status as a credible financial hub and capture a slice of the renminbi internalisation pie.

“London should do well in RMB,” said Fang. “One thing that gives it a strong advantage is that the Chinese government and central bank think very highly of it. London takes a very high position in the minds of Chinese policy-makers. It has successfully been the centre for US dollar and euro, so it already has a proven track record of promoting currencies from a non-native market.”

Fang also spoke of BOC’s involvement in the City of London Initiative, an industry body that seeks to push renminbi growth in London. Founded in April 2012 by five large banks (Barclays, BOC, Deutsche Bank, HSBC and Standard Chartered), it now has 13 members on a number of different subcommittees, and it is overseen by the Bank of England, the UK Treasury and the Prudential lexapro online Regulatory Authority.

In late March this year, the UK government announced it had secured a London-based renminbi clearing and settlement bank after negotiation with the Chinese authorities. The UK chancellor of the exchequer, George Osborne, intends to ensure London will be “the leading western centre for trading in the Chinese currency”, but will be up against competition from Frankfurt, which is also set to host a renminbi settlement and clearing infrastructure.

An attempt by the Chinese central bank to inject more volatility into the renminbi at the start of 2014 has resulted in a prolonged depreciation against the US dollar. A significant section of the market, particularly hedge funds, got its fingers burned by this move, but it has done little to arrest the long-term growth in renminbi volumes.

This growth has been particularly sharp in the currency’s offshore variant, CNH. Bid-offer spreads on CNH crosses have narrowed from 30 pips to 3 pips in just two years, and daily spot CNH volume is now at $5 billion. Much of this growth has been in the e-FX space – multi-dealer trading platforms such as EBS have seen a considerable boost in renminbi volumes since the back end of last year.