Last updated: December 4, 2012 5:41 pm

BoE urged to support renminbi trading

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A banker sorting a pile of Renminbi©NTI

The Bank of England is facing calls to support renminbi trading in London, as bankers meet this week to discuss how to boost the nascent market in China’s tightly controlled currency.

Top investment banks in London have asked the BoE to provide a swap line with the People’s Bank of China that they say would shore up confidence among companies and investors who are nervous of trading the renminbi due to liquidity concerns.

China’s currency remains tightly controlled and cannot be traded freely outside the country. Under a swap agreement, central banks agree to exchange each other’s currency and can then lend the money out to domestic banks to improve liquidity.

“At the moment it’s not that easy to do renminbi transactions,” said one banker. “The liquidity isn’t that great and there’s not the confidence from clients you want in a market that size.”

The BoE is resisting the calls on the grounds that it usually only provides so-called swap lines with other central banks when there is a funding emergency.

Following a meeting of investment banks in November, the BoE told bankers in an emailed statement that its role was to support financial markets in the UK rather than to promote the development of particular markets or initiatives, according to bankers involved in the talks.

The BoE currently has open swap lines in place with the US Federal Reserve and the European Central Bank.

Bankers and Treasury officials on Tuesday convened for a two-day conference under a City of London Corporation initiative to further growth in trading the renminbi. Banks are trying to convince clients to use the renminbi more in a battle to be at the forefront of what is expected to be one of the world’s most commonly traded currencies in the next decade.

The working group was set up in April this year and held its first conference in May with a focus on institutional investors. This week the focus is on companies, some of whom have faced difficulties trying to pay Chinese suppliers in renminbi. George Osborne, UK chancellor, has said that the establishment of a renminbi hub in London is a key priority for the Treasury.

“I personally believe it makes sense for the UK to have swap lines with China,” said John McCormick, chief executive, markets and international banking for Asia Pacific at RBS, who attended the forum on Tuesday. “The political relationship is very warm and it would send another strong statement to the market that they’re both keen to develop the market jointly.”

Bankers told the Financial Times that the establishment of a swap line could also help restore confidence in the banks’ reliability in an environment where many are facing reputational damage over the Libor scandal. “A swap line would be an insurance policy. It’s more important now than it was a year ago,” said one.

A BoE spokesperson said: “The Bank has been and remains fully engaged with the City of London initiative to develop London as a centre of renminbi trading and is in regular dialogue with the People’s Bank of China on a range of issues.”

“Should it become appropriate to establish a swap line with the PBOC, the Bank would have no hesitation in doing so in the future.”

Last week, China Construction Bank became the first Chinese bank to issue a bond denominated in renminbi in London. But trade in the renminbi remains very limited, accounting for less than 1 per cent of the global currency market, compared with 86 per cent for the US dollar.

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