Banks welcome China-UK talks on forex trade

TWO OF Britain’s biggest banks have welcomed government efforts to establish the City as the world’s biggest centre for trading China’s currency outside Hong Kong.

Standard Chartered chief executive Peter Sands and his counterpart at HSBC, Stuart Gulliver, have both committed to send senior representatives to bi-annual lobbying meetings with the Bank of China, Barclays and Deutsche Bank, to clear hurdles to trading larger volumes of the Chinese renminbi in London.

The Hong Kong Monetary Authority (HKMA) has agreed to co-host the meeting with the UK Treasury, which a Treasury source said is also supported by Beijing.

Sands said that “a strong partnership with the HKMA is vital” to the project of making sure that London is the centre for large-scale offshore renminbi trading outside of Asia.

As City A.M. revealed in November, the Treasury has pushed UK regulators to look at loosening regulations for Chinese banks as part of its renminbi policy to allow for a freer movement of capital between Beijing and London.

Gulliver said that trade in Chinese money is “a rapidly growing market given China’s expanding role in the global economy and the City’s position as the world’s leading foreign exchange market”.

He added that establishing a strong forex link with China could also help other UK businesses to sell goods into Asia’s biggest economy.

A spokesperson for the Bank of China said that it “strongly supports London to be the next off-shore renminbi financial centre, after Hong Kong”.

Although Britain and China have made progress in talks, the limiting factor remains Beijing’s willingness to liberalise trade in the renminbi, which is strictly controlled to keep Chinese imports cheap.

Although the People’s Bank of China, China’s central bank, has talked up liberalisation as an aim, it has acted slowly.

The bank said on Friday that it is “basically ready” to “reform” its interest rate policy, but it is not clear what the timescale is.

Chancellor George Osborne will press the issue of a City-based renminbi trade on his four-day Asia tour.

Q&A: THE RENMINBI TRADE

Q. ISN’T THE RENMINBI STRICTLY CONTROLLED BY CHINA?

A. Yes. Beijing has kept its currency on a short leash to hold down the price of Chinese exports. But in order to avoid overheating its economy and correct global imbalances, Beijing has said it wants to let the renminbi rise gradually to become one of the world’s reserve currencies. Progress has been slow since the policy was adopted in 2004 but trade in the currency began to grow faster recently: the proportion of China’s external trade settled in renminbi swelled from 0.7 per cent in 2010 to 11 per cent last year. So the market is already growing – the question is how quickly China will let it grow.

Q. WHAT’S IN IT FOR BRITAIN?

A. The City’s dominance of global foreign exchange trading brings large pools of liquidity and business through London. Britain is already host to 30 per cent of renminbi trades settled outside China and the Treasury wants to maintain London’s dominance of the market to further trade links with the world’s fastest-growing region.

Q. WHAT NOW?

A. Banks have agreed to meet twice a year to discuss the trade at a meeting hosted by the Hong Kong Monetary Authority and Treasury.