CNH Tracker-European yuan business to get boost from London, Frankfurt clearing

Thu Apr 3, 2014 2:09am EDT

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By Michelle Chen
    HONG KONG, April 3 (Reuters) - At the same time China is
reforming its foreign-exchange market at home, it is promoting
the yuan currency to foreign investors beyond Asia time zones,
despite the recent sharp depreciation of the "redback".
    In the past week, Britain and Germany announced their
countries would get yuan clearing services to facilitate trade
transactions and investments denominated in the Chinese
currency.  
    This will be the first time there will be yuan clearing
banks in Western countries, a development that should attract
more European enterprises to switch to the yuan in trade
settlement and help yuan funds accumulate in Europe.
    At present, Europe relies on Hong Kong's infrastructure to
clear yuan trade. Though the Real Time Gross Settlement (RTGS)
system has extended operating hours to 15 hours a day to cover
part of the office hours in Europe, bankers say the process for
clearing later in the day in European time zones is cumbersome.
    The demand to do trade transactions in yuan is quite strong
outside the former British colony, boding well for the growth of
yuan business globally after more clearing platforms are set up.
    Last week, Hong Kong's acting financial secretary, K C Chan
gave an indication of how many transactions now done by the
city's RTGS are for customers elsewhere. In May 2013, he told a
forum, only about 10 percent was for transactions between the
Mainland and Hong Kong.
    Becky Liu, a senior strategist at Standard Chartered Bank,
said setting up yuan clearing service in Britain and Germany
"will boost intra-Europe yuan activities and accelerate
redenomination to the yuan". 
    "Only when yuan deposits are precipitated locally can
investors consider the next step, that is, to make investments
with their yuan holdings," Liu said.    
    Beijing is yet to announce which Chinese banks will become
yuan clearing banks for the two countries, but bankers say Bank
of China  and Industrial and Commercial Bank
of China  are good bets.
    The official blessing to London and Frankfurt will intensify
already fierce competition among European cities which have been
striving to become a yuan hub for European time zones.
    Luxembourg holds the biggest yuan pool in Europe for the
time being and France earlier this week was given a quota of 80
billion yuan ($12.89 billion) to invest in China's capital
markets under the renminbi Qualified Foreign Institutional
Investor (RQFII) programme.
    London, as one of the world's leading financial centres, was
the first G7 capital to sign a bilateral currency swap with
China and the first to win a RQFII quota.
    As for Germany, its huge trade transactions with China could
quickly create a pile of yuan deposits there. Trade flows
between the two countries reached 140 billion euros ($192.75
billion) last year, exceeding Chinese trade with France, Britain
and Italy combined.    
    Banks in Germany have begun to strengthen their renminbi
teams. Deutsche Bank announced last week creation of
a position as global head of renminbi services.
    
    WEEK IN REVIEW:   

    * Yuan deposits in Hong Kong rose to 920.3 billion yuan in
February, up 3 percent from a month earlier, the Hong Kong
Monetary Authority said on Monday. Cross-border trade settled in
yuan decreased 19.9 percent to 394.1 billion yuan on a
month-on-month basis. 
    * China has granted French financial institutions a quota of
80 billion yuan for investing in China's domestic capital
markets, a move likely to intensify competition among European
cities to be major offshore yuan centers. 
    * China Development Bank priced a 1 billion yuan bond with a
coupon rate of 3.35 percent and strong interest from Southeast
Asia, said Malaysia's CIMB, one of the joint global coordinators
for the deal. 
    * Hong Kong Futures Exchange, a wholly-owned subsidiary of
Hong Kong Exchanges and Clearing, has appointed Bank of China
(Hong Kong) and Deutsche Bank as market makers for the
after-hours trading of its RMB Currency Futures that will begin
on 7 April.
    
    
   CHART OF THE WEEK: 
   Customer initiated and institutional payments denominated in
the yuan are increasing in countries/regions beyond Hong Kong,
as shown by SWIFT data: link.reuters.com/vym28v
        
   RECENT STORIES:
CNH Tracker-China's yuan trade settlement flourishes despite FX
volatility 
    
More stories about the CNH market                 
Daily onshore yuan reports                        
Daily China money market reports                  
  
Offshore yuan rate    Onshore yuan rate  
Offshore yuan dealt Onshore yuan on CFETS 
  
THOMSON REUTERS SPEED GUIDES  
       
($1 = 6.2056 Chinese Yuan)

($1 = 0.7263 Euros)

 (Editing by Richard Borsuk)
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