| HONG KONG, June 26
HONG KONG, June 26 The overseas expansion of
China's yuan currency is taking giant strides toward Western
Europe, with two clearing banks assigned for the region in the
past week - the first time yuan clearing banks have been
operated outside of Asia.
The move is set to breathe new life into Europe's yuan
trade, which is expected to see faster accumulation of yuan
deposits and a boom in financial products linked to the
It took almost 10 years for China to set up another yuan
clearing bank after Hong Kong, yet clearing banks began to
spring up in the past year as Beijing stepped up efforts to
facilitate yuan usage in trade settlement and investment among
global investors, with London and Frankfurt as the first West
China's central bank said last Thursday it had designated
Bank of China to offer a yuan clearing service in
Frankfurt, following an announcement a day earlier that China
Construction Bank was selected to provide the same
service for London.
A yuan clearing bank enables overseas banks to access
China's onshore money market directly without relying on Hong
Kong's infrastructure, improving efficiency and convenience when
settling yuan transactions.
"The broadening of RMB (Renminbi/yuan) community into the
Western hemisphere will enlarge the global transaction and
payment volume of the Chinese currency," ANZ analysts wrote in a
note to clients.
Adding to the momentum is the direct trading between the
yuan and the sterling which started last week, given that
sterling is a very actively-traded currency and London already
takes more than 20 percent of yuan FX trading.
Frankfurt's strength lies in its close trade relationship
and big trade surplus with China, which puts it in a good
position to challenge Luxembourg's yuan pool - currently the
largest in Europe.
Germany is China's most important trading partner in Europe.
Total import and exports between the two countries reached
$161.6 billion in 2013 and Germany's trade surplus amounted to
$26.8 billion, according to the General Administration of
Customs of China.
Cross-border trade settlement is the main channel for yuan
accumulation in overseas markets especially if an offshore
centre has large trade surplus with China. The surge of yuan
deposits in Taiwan is an example.
As China hastens its steps to establish the "redback" into
foreign corporates and investors, it is reasonable to expect
more such clearing banks being appointed in the near future and
ideally in the American time zone.
Chinese media reported that the Canadian government is
studying how to set up a yuan clearing centre with the private
sector, and hopes to see some progress later this year.
Beyond these yuan clearing banks, Beijing also aims to roll
out a more aggressive global solution in 2014, called China
International Payment System (CIPS). The system will enable
banks in any country to access the clearing platform of the
People's Bank of China directly.
However, the timetable for this facility has become
progressively less clear, possibly because the complexities of
designing such a system in an environment of currency controls,
the City of London - the capital's financial centre - said in
its latest report.
WEEK IN REVIEW:
* China Construction Bank (Asia) sold the first offshore
yuan bond in Switzerland. The 1.25 billion yuan ($201.32
million) three-year dim sum bond was rated A2 by Moody's and was
priced at 3.45 percent.
* Eastern Creation II Investment Holdings completed its sale
of a 1.2 billion yuan three-year dim sum bond with a coupon of
3.75 percent, according to a term sheet seen by Reuters. The
senior guaranteed bond attracted 2.2 billion yuan from 56
* China's central bank said it would expand a pilot
programme from Shanghai's Free Trade Zone to all of Shanghai
from Friday. Under the plan, China will first liberalize
interest rates on small-sum foreign exchange deposits from
companies, and then expand to the scheme to individuals.
* Investor sentiment on most emerging Asian currencies
improved over the last two weeks, with the first bullish bets
seen on China's yuan in four months as the currency showed signs
of stabilising, a Reuters poll showed.
CHART OF THE WEEK:
China's yuan expands its footprint quickly beyond Hong Kong,
the first offshore yuan center: link.reuters.com/xak32w
CNH Tracker-London charts decline in yuan non-deliverable
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 = 6.2090 Chinese Yuan Renminbi)
(Editing by Eric Meijer)