Friday, February 22, 2013

UK, CHINA CENTRAL BANKS TO DISCUSS CURRENCY SWAP LINE

Britain said on Friday it hopes to set up a currency swap line with China soon to help finance trade, a move that will enhance London's drive to become a leading offshore center for Yuan trade.

China, in an effort to internationalize the yuan and eventually make it a world reserve currency, has already agreed swap lines with more than 15 other countries, mostly emerging markets.

The Bank of England said on Friday it would work with China's central bank to sign a final agreement shortly on a reciprocal three-year yuan-sterling swap, building on its statement last month that it was ready "in principle" to adopt the swap line.

Britain, always anxious to bolster London's status as Europe's biggest financial center, launched an offshore yuan currency and bond market to great fanfare last year.

A swap deal would cement its role as the leading center in the Group of Seven industrialised nations for offshore trade in the yuan - also known as the renminbi - helping it to see off potential rival yuan centers such as Frankfurt, Paris and New York, market watchers say.

Figures from global transaction services organisation SWIFT show that Britain is the leading center for offshore yuan trade outside Asia and has made far more progress in getting companies to invoice in yuan than the United States, for example.

By comparison, the yuan bond market in Hong Kong, the biggest offshore center for yuan trade, grew to around 350 billion yuan ($55.7 billion) in a little over two years from 2010, according to Thomson Reuters data.

The yuan is not freely convertible but China plans to make it basically convertible as early as 2015 and eventually put it on a par with the U.S. dollar.

The Bank of England said the swap arrangement would be used to finance trade and direct investment between the two countries and to support domestic financial stability if needed.


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