London warned it may struggle with China’s currency strategy

 
Tim Wallace
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LONDON's bid to become an offshore centre for renminbi looks set to fail as the City is more suited to private sector action and market systems than the highly politicised Chinese currency, a think-tank warns in a report published today.

Chatham House also notes that Hong Kong's position as part of China but with a separate legal system means it has a competitive advantage as a centre for renminbi, through which London will have to go to access the currency - leaving the City as a "connecting dot."

"The extent to which these hubs can develop depends on the strategic decisions made in the onshore market and on the liquidity made available through and by the offshore centre," the study argues. "As the pool of renminbi outside mainland China depends on the supply of liquidity provided by Beijing, this gives Hong Kong a competitive advantage over other financial centres."

However, the report does note that London is both the world's biggest financial centre, and is situated within the EU - China's biggest trading partner - making the City an important part of China's long-term plan to internationalise the currency, and making it a leading candidate to be a "hub" from the renminbi.

"Even if an offshore centre has a broader scope, offshore hubs are essential to China's strategy. They are the connecting dots in the expanding RMB offshore market."