* Deal is China's first swap line with a G7 country
* UK aims to boost London's role as centre for yuan trade
By David Milliken
LONDON, June 22 Britain and China have agreed to
set up a currency swap line, China's first such agreement with a
G7 country, in a move aimed at boosting trade and financial
stability, the Bank of England said on Saturday.
The Bank of England said in January that it was open to a
sterling/renminbi swap line, something British financiers have
been asking for in order to strengthen London's position as a
centre for issuing bonds denominated in China's currency.
In an effort to achieve greater overseas use of the renminbi
- also known as the yuan - China has already agreed
swap lines with more than 15 other countries, mostly emerging
On Saturday, Bank of England Governor Mervyn King and his
counterpart at the People's Bank of China, Zhou Xiaochuan,
signed an agreement to set up a three-year swap line, which will
have a maximum size of 200 billion yuan ($32.6 billion).
"In the unlikely event that a generalised shortage of
offshore renminbi liquidity emerges, the Bank will have the
capability to facilitate renminbi liquidity to eligible
institutions in the UK," King said in a statement.
This means the Bank of England could supply yuan in exchange
for other currencies if there were a sudden shortage in the
London market, for example to enable a British company to pay
for imports from China.
For Britain, the swap deal should also help to cement
London's role as the leading centre in the Group of Seven
industrialised nations for offshore trade in the yuan, in the
face of competition from Frankfurt, Paris and New York.
However, Britain's yuan trade still pales in comparison with
that conducted in Hong Kong.
While a handful companies such as oil major BP and
banks HSBC and ANZ have issued
yuan-denominated debt in London over the past year, in Hong Kong
the trade has grown to around 350 billion yuan in a little over
two years from 2010, according to Thomson Reuters data.
Britain already has swap lines with the U.S. Federal
Reserve, the European Central Bank and the Bank of Japan, though
they have been little used other than at the height of the