UK becomes G7 leader in offshore renminbi trade

The Bank of England will soon become first G7 central bank to enter into a foreign exchange swap agreement with China.

The swap deal will cement the UK’s role as the leading centre in the G7 industrialized nations for renminbi trade.

Executive Director for Banking Services, Chris Salmon, explained the move was aimed at bolstering a developing offshore market in renminbi trade out of London that Britain wants to encourage. He said the BoE is ready in principle to agree to a swap line with the People's Bank of China, the central bank, if a mutually agreeable format can be identified.

The move is not without its perils, however, since the renminbi is not freely exchangeable. Bankers have also argued that the bond side would struggle to develop unless the UK and China took steps to make trading easier.

European and US officials have been constantly urging China to do more to open up the renminbi to market forces, saying its artificial weakness was one of the key reasons for imbalances in the global economy.

A ranking executive of a leading bank said his bank would welcome the development of the offshore renminbi market just as it would any other legitimate market innovation.

China is setting-up swap lines around the world as part of its strategy to internationalize the renminbi.

The UK is the leading centre for offshore renminbi trade outside Asia and has made far more progress in getting companies to invoice in renminbi than the United States,