Clear­ing fa­cil­ity to sup­port Lon­don’s ren­minbi busi­ness

China Daily (Hong Kong) - - BUSINESS COMPANIES - By CE­CILY LIU in Lon­don ce­cily.liu@chi­nadaily.com.cn

Lon­don’s new ren­minbi clear­ing fa­cil­ity will make it eas­ier for busi­nesses and in­vestors to use the Chi­nese cur­rency, and it will also sup­port the city’s role as an off­shore yuan cen­ter, said Michael Vrontami­tis, head of prod­uct man­age­ment at the trans­ac­tion bank­ing unit of Stan­dard Char­tered Plc. The ben­e­fits of the fa­cil­ity in­clude same-day clear­ing for Lon­don trans­ac­tions, the abil­ity to clear trans­ac­tions without be­ing af­fected by Chi­nese pub­lic hol­i­days and clear­ing un­der the laws of the United King­dom.

The fa­cil­ity is be­ing jointly es­tab­lished by Stan­dard Char­tered and Agri­cul­tural Bank of China Ltd. It was an­nounced last week dur­ing Prime Min­is­ter David Cameron’s visit to China.

There had been much spec­u­la­tion in Lon­don’s fi­nan­cial sec­tor about the pos­si­bil­ity that the Peo­ple’s Bank of China (the cen­tral bank) would ap­point an of­fi­cial clear­ing bank in Lon­don. But Stan­dard Char­tered and ABC took the ini­tia­tive to es­tab­lish a mar­ket-led so­lu­tion.

The big Lon­don client bases of the two banks “will fa­cil­i­tate a seam­less trans­fer of ren­minbi,” said Vrontami­tis in an in­ter­view with China Daily.

“I think fun­da­men­tally, the ser­vices we can pro­vide are equiv­a­lent to the ser­vices that an of­fi­cial clear­ing bank ap­pointed by the PBOC would have pro­vided,” he said.

In some off­shore cen­ters, the PBOC ap­points an of­fi­cial clear­ing bank and helps that bank carry out the clear­ing func­tion. That’s the case in Hong Kong, for ex­am­ple, where Bank of China Ltd’s unit ful­fills that role.

But in other mar­kets, clear­ing ser­vices are es­tab­lished by the banks of­fer­ing the ser­vices.

One ex­am­ple is the In­dus­trial and Com­mer­cial Bank of China Ltd, which of­fers ren­minbi clear­ing ser­vices in Sin­ga­pore. Vrontami­tis said it rep­re­sents a model sim­i­lar to the Stan­dard Char­tered-ABC plat­form in Lon­don.

Be­fore the clear­ing sys­tem was es­tab­lished, Lon­don’s ren­minbi trans­ac­tions had to be cleared through other off­shore ren­minbi cen­ters, such as Hong Kong and Sin­ga­pore. But that meant trans­ac­tions oc­cur­ring in the late af­ter­noon in Lon­don had to wait un­til the next day to go through the Asian plat­forms.

The Stan­dard Char­tered- ABC will op­er­ates from 2 a.m. to 5 p.m. Lon­don time, so all trans­ac­tions can be cleared on the same day, said Vrontami­tis.

Dur­ing long hol­i­days in China dur­ing the Lu­nar New Year and “Golden Week” in Oc­to­ber, trans­ac­tions in Lon­don can still be cleared on the new plat­form, said Vrontami­tis.

Banks in Lon­don that have clients re­quir­ing ren­minbi-clear­ing ser­vices pre­vi­ously had to set up ac­counts within Asian ju­ris­dic­tions to fa­cil­i­tate this clear­ing. They can now avoid this process and use the new plat­form, he said. The plat­form is open to clients of other banks as well, he noted.

Lon­don’s drive to be­come an off­shore ren­minbi cen­ter started in Septem­ber 2011, when Wang Qis­han, who was China’s vice-premier at the time, wel­comed pri­vate sec­tor-led ini­tia­tives in de­vel­op­ing a cen­ter dur­ing his meet­ing with Chan­cel­lor of the Ex­che­quer Ge­orge Os­borne.

Since then, Lon­don’s banks and other fi­nan­cial in­sti­tu­tions have worked to launch new ren­min­bide­nom­i­nated prod­ucts and ser­vices, and ren­minbi liq­uid­ity in Lon­don has grad­u­ally in­creased.

Ac­cord­ing to the City of Lon­don, im­port and ex­port ren­minbi fi­nanc­ing to­taled 33.6 bil­lion yuan ($5.5 bil­lion) in 2012, up 100 per­cent from 2011, and the value of letters of credit and other loan guar­an­tees grew 13 times to 4.7 bil­lion yuan.

Vrontami­tis said he be­lieves the next step for Lon­don to grow as a global off­shore ren­minbi cen­ter is to fur­ther in­crease ren­minbi liq­uid­ity, and the new clear­ing fa­cil­ity will help with that process.

He said the clear­ing ser­vice will also raise the aware­ness and the de­vel­op­ment of more ren­minbi-re­lated prod­ucts and ser­vices in ar­eas such as trade fi­nance, global cash man­age­ment, as­set man­age­ment and bond set­tle­ment.

Zhang Yun, pres­i­dent of ABC, said ABC and Stan­dard Char­tered will pro­vide com­pre­hen­sive trade, in­vest­ment and fi­nanc­ing ser­vices to mar­ket play­ers in Lon­don, and they will sup­port Chi­nese com­pa­nies op­er­at­ing in the UK.

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