Germany has stolen a march on the UK to become the first non-Asian clearing hub for renminbi (Rmb) trade.
The Deutsche Bundesbank and the People’s Bank of China (PBOC), Germany and China’s respective central banks, signed a memorandum of understanding in Frankfurt on Saturday (March 29), two days before a similar agreement was inked in London.
However, GTR was present at a London conference today (March 31) at which a government minister wrongly claimed that the UK would be the first European country to offer such a service.
Sajid Javid, the financial secretary to the Treasury, said that an MOU between the Bank of England and PBOC would establish London as the first city to offer trade clearing for Rmb outside of Asia.
Javid was keen to impress the importance of achieving the milestone on the audience at the International Financial Services Forum, but analysts have downplayed its significance.
“Our view is that there won’t be an offshore market for Rmb in the near future,” Qinwei Wang, a China expert at Capital Economics tells GTR. “China has continued to remain in tight control of capital flows. The currency is closed for foreign investors. As long as that remains I don’t think there’s huge potential in the market.”
Wang says that the PBOC has prioritised other areas of reform in place of exchange rate liberalisation. The bank is keen to push forward with interest rate reform, initially, after which it will look at regulating shadow banking and introducing a more flexible exchange rate.
He says: “The interest rate seems to be pushing forward steadily. The controls of lending rate has been removed and the focus is on the deposit rate. The governor of PBOC said he hoped to finish in a couple of years. It [PBOC] is also talking about allowing private banks to set up… they are moving in the right direction but I don’t think Rmb will be an offshore market over the next couple of years.”