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London backs global use of the Chinese currency
By David Wootton |
00:00 UTC+8 September 24, 2012
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LAST week I was on a visit to China. The focus of my visit was the work we are undertaking in London to support the increasing international use of the yuan (Renminbi). London is the world's leading financial center, and the global center for foreign exchange trading, and I was looking at further ways to work with the Chinese authorities and private sector to develop the international use of the yuan.
The growth of the offshore yuan market has been significant and very impressive in the last two years as the Chinese government has relaxed some exchange controls and made it clear that it intends to do more. Yuan-denominated business is growing inside and outside Hong Kong.
The appetite for the currency outside Chinese mainland is an important development - for example a recent City of London and The Banker survey of 200 European corporates and investors showed that 99 percent of those asked expect the yuan to be an important currency for global business activity within the next 10 to 15 years. But there is more to be done for the global use of the Chinese currency to match the size of the Chinese economy.
An internationalized yuan will reduce the exposure of the Chinese currency to the volatility of the US dollar. In addition, China is the major trading nation in Asia and it is therefore natural for trade with emerging market countries in the region to be denominated in yuan.
It could over time result in South East Asia becoming a "yuan region" where the reference currency for international trade is yuan, a situation which would further add to China's trade.
For London, the emergence of the yuan as a potential new global market is naturally of great interest and something we are actively promoting.
Well placed
London is already well placed to become the major yuan center in Europe: we have yuan deposits in excess of 109 billion yuan (US$17.2 billion); we have a number of products and services available including retail banking services - both personal accounts and private banking accounts - with total deposits private banking accounts in excess of 3.6 billion yuan and a full range of corporate banking services - principally focused on foreign exchange, corporate accounts and trade financing. Overall growth in yuan forex products in London is over 30 percent per annum.
London's time zone, with a working day which overlaps with that of China, and the rest of the globe from New Zealand to Brazil, is advantageous; the UK's legal and regulatory systems are respected internationally; London's global financial community has a proven record of rapidly responding to new market needs; and London's global institutions collectively are able to bring massive liquidity to the markets.
This is one of the factors behind London's leading position in the forex market and the very strong position it has in international bond issuance.
A recent study by the City of London showed that these factors all influence corporate and investors' decisions on whether to carry out yuan transactions in London and that they value the convenience of being able to transact within their existing banking relationships.
The City of London initiative on London as a center for yuan business, launched in April, seeks to harness this appetite for yuan transactions and financial services in London. This exciting project brings together public and private participants including banks and the UK government on the technical, infrastructure and regulatory issues relevant to the development of the yuan market in London.
The initiative is working to build a long term sustainable market that supports the internationalization of the yuan - to make trade processing easier for European corporates and offer customers and investors the chance to invest, trade, bill and bank in yuan. It also seeks to simplify and increase access to yuan related products for a wide range of Western companies, including Small and Medium-sized Enterprises who do not necessarily have access to financial services in Asia, and to create deeper liquidity and broaden the range of financial services available in the European time zone.
It is clear that this initiative will benefit both our countries and I hope that my visit to China could enable us to work even more closely on this exciting project.
David Wootton took office as the 684th Lord Mayor of the City of London in November 2011. He represents the City and UK businesses and conducts talks with policy makers around the world.
The growth of the offshore yuan market has been significant and very impressive in the last two years as the Chinese government has relaxed some exchange controls and made it clear that it intends to do more. Yuan-denominated business is growing inside and outside Hong Kong.
The appetite for the currency outside Chinese mainland is an important development - for example a recent City of London and The Banker survey of 200 European corporates and investors showed that 99 percent of those asked expect the yuan to be an important currency for global business activity within the next 10 to 15 years. But there is more to be done for the global use of the Chinese currency to match the size of the Chinese economy.
An internationalized yuan will reduce the exposure of the Chinese currency to the volatility of the US dollar. In addition, China is the major trading nation in Asia and it is therefore natural for trade with emerging market countries in the region to be denominated in yuan.
It could over time result in South East Asia becoming a "yuan region" where the reference currency for international trade is yuan, a situation which would further add to China's trade.
For London, the emergence of the yuan as a potential new global market is naturally of great interest and something we are actively promoting.
Well placed
London is already well placed to become the major yuan center in Europe: we have yuan deposits in excess of 109 billion yuan (US$17.2 billion); we have a number of products and services available including retail banking services - both personal accounts and private banking accounts - with total deposits private banking accounts in excess of 3.6 billion yuan and a full range of corporate banking services - principally focused on foreign exchange, corporate accounts and trade financing. Overall growth in yuan forex products in London is over 30 percent per annum.
London's time zone, with a working day which overlaps with that of China, and the rest of the globe from New Zealand to Brazil, is advantageous; the UK's legal and regulatory systems are respected internationally; London's global financial community has a proven record of rapidly responding to new market needs; and London's global institutions collectively are able to bring massive liquidity to the markets.
This is one of the factors behind London's leading position in the forex market and the very strong position it has in international bond issuance.
A recent study by the City of London showed that these factors all influence corporate and investors' decisions on whether to carry out yuan transactions in London and that they value the convenience of being able to transact within their existing banking relationships.
The City of London initiative on London as a center for yuan business, launched in April, seeks to harness this appetite for yuan transactions and financial services in London. This exciting project brings together public and private participants including banks and the UK government on the technical, infrastructure and regulatory issues relevant to the development of the yuan market in London.
The initiative is working to build a long term sustainable market that supports the internationalization of the yuan - to make trade processing easier for European corporates and offer customers and investors the chance to invest, trade, bill and bank in yuan. It also seeks to simplify and increase access to yuan related products for a wide range of Western companies, including Small and Medium-sized Enterprises who do not necessarily have access to financial services in Asia, and to create deeper liquidity and broaden the range of financial services available in the European time zone.
It is clear that this initiative will benefit both our countries and I hope that my visit to China could enable us to work even more closely on this exciting project.
David Wootton took office as the 684th Lord Mayor of the City of London in November 2011. He represents the City and UK businesses and conducts talks with policy makers around the world.
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