Bank of China gets yuan man­date in Frankfurt

China Daily (Canada) - - BUSINESS - By ZHANG CHUNYAN and CE­CILY LIU in Lon­don

The cen­tral bank said on Thurs­day that it had des­ig­nated Bank of China Ltd as the first yuan-clear­ing ser­vice bank in Frankfurt, the lat­est step in the na­tion’s drive to bol­ster in­ter­na­tional use of the cur­rency.

The move came a day af­ter China Con­struc­tion Bank Corp was des­ig­nated as the first yuan-clear­ing bank in Lon­don.

In a state­ment on its web­site, theP­eo­ple’s Bank ofChina ap­pointed Bank of China as the first bank in the euro area able to clear pay­ments in the Chi­nese cur­rency.

The se­lec­tion of the lender’s Frankfurt branch will help Ger­many’s fi­nan­cial cap­i­tal be­come ahub­for yuan trad­ing, ex­perts said. The Ger­man and Chi­nese cen­tral banks agreed on March 28 to co­op­er­ate in the clear­ing and set­tle­ment of trans­ac­tions in the yuan.

Since March, three is­suers have sold yuan-de­nom­i­nated debt in Frankfurt.

“The rea­son for Frankfurt to fa­cil­i­tate euro-area trade is be­cause it is the cen­ter for the Euro­pean Cen­tral Bank. And in ex­actly the same way, Lon­don is the ster­ling cen­ter and the link is be­tween­ster­lin­gand the ren­minbi,” said Andrew Main, man­ag­ing part­ner of Strat­ton Street Cap­i­tal LLP.

Dur­ing Pre­mier Li Ke­qiang’s visit to the UK this week, China Con­struc­tion Bank, the coun­try’s sec­ond-largest lender, clinched a deal to be­come UK’s first clear­ing bank for the yuan. Lon­don is also aim­ing to be­come the leading Western cen­ter for the off­shore yuan trade.

The PBOC said on Wed­nes­day that the Chi­nese cur­rency will be traded di­rectly against ster­ling in the in­ter­bank for­eign ex­change mar­ket, a new step to fa­cil­i­tate in­vest­ment and bi­lat­eral trade be­tween China and Bri­tain.

Lon­don, which dom­i­nates the $5 tril­lion a day global for­eign ex­change mar­ket, ac­counts for two-thirds of all ren­minbi pay­ments out­side of the Chi­nese main­land and Hong Kong, ac­cord­ing to UK Chan­cel­lor of the Ex­che­quer Ge­orge Os­borne.

Os­borne also said on Wed­nes­day the in­creas­ing im­por­tance of the yuan could lead to a “his­toric shake-up” of the global fi­nan­cial sys­tem, and he wants theUnited King­dom to play a cen­tral role.

Fi­nan­cial­cen­ter­ssuchasLon­don, Frankfurt, Lux­em­bourg, New York, Paris and Sin­ga­pore are com­pet­ing to be­come the top off­shore yuan hub as China pro­motes the use of its cur­rency in in­ter­na­tional trade.

Theyuan­ranked­sev­enth as a global pay­ments cur­rency in April, ac­cord­ing to the So­ci­ety for World­wide In­ter­bank Fi­nan­cial Telecom­mu­ni­ca­tions.

In­dus­trial and Commercial Bank of China Ltd was pre­vi­ously selected to pro­vide yuan­clear­ing ser­vices in Sin­ga­pore, while Bank of China was des­ig­nated as a yuan-clear­ing bank in Aus­tralia.

CCB Chair­man Wang Hongzhang said in Lon­don on Thurs­day that the bank will seek to pro­vide a prompt, se­cure and ef­fi­cient yuan­clear­ing ser­vice that sat­is­fies the needs of other banks in Lon­don.

Wang said be­cause CCB in Lon­don is cur­rently a sub­sidiary of the par­ent bank, it has set up an ar­range­ment with the head­quar­ters in the form of a di­rect guar­an­tee, to make sure CCB Lon­don can have the fi­nan­cial ca­pac­ity to ac­com­mo­date its new clear­ing bank role.

Wang said CCB has al­ready sub­mit­ted an ap­pli­ca­tion for a branch li­cense to the UK reg­u­la­tors, al­though he didn’t know when ap­proval will be granted.

Branch sta­tus gives a bank much larger lend­ing and fi­nanc­ing ca­pa­bil­i­ties than those of a sub­sidiary.

Wang said its clear­ing plat­form acts as a com­ple­ment to ex­ist­ing clear­ing chan­nels in Lon­don, as op­posed to caus­ing com­pe­ti­tion.

He said the sign­ing of co­op­er­a­tion agree­ments be­tween CCBand 11 ma­jor banks shows that other banks trust it to pro­vide this ser­vice. Con­tact the writ­ers at zhangchun­yan@ chi­ and ce­cily.liu@chi­

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