City’s top brass throws weight behind London RMB initiative

London will become the Western hub for offshore trading of Chinese renminbi (RMB), the UK's chancellor George Osborne said this morning as politicians, banking chiefs and public sector officials lined up to show their support for a major initiative to secure London's future role in the high-stakes currency.

"London already represents 26% of the global offshore RMB spot foreign exchange market – the majority is based in Hong Kong. This is a market that grew by more than 80% last year. Let me be clear – London is not in competition with Hong Kong, it is a complement, providing a Western hub for RMB business," said Osborne, speaking at a launch event for the City of London Corporation's initiative on London as a centre for renminbi business.

The speech follows the UK Treasury's January launch, in partnership with the Hong Kong Monetary Authority, of a London-Hong Kong private-sector forum to accelerate the development of renminbi trading in London. HSBC today announced it would issue the first international RMB bond ever to be launched outside China and Hong Kong.

London is a natural hub for Chinese banks looking westwards, said Osborne, given its pre-eminence as a financial centre and its expertise in foreign exchange and bond issuance. "We are not prepared to let anyone steal a march on us in terms of new products and new markets. We are the natural home in the West for those who want to invest in the Chinese economic success story," he said.

The City of London initiative has five private sector members – Bank of China, Barclays, Deutsche Bank, HSBC and Standard Chartered – as well as observers from the Treasury, the Bank of England and the Financial Services Authority. Speaking in a panel discussion after Osborne's address, senior officials at all five banks pledged their support of the initiative.

We are not prepared to let anyone steal a march on us in terms of new products and new markets. We are the natural home in the West for those who want to invest in the Chinese economic success story

"We are committed to developing London as a centre for offshore RMB trading. In the City of London, it's such an opportunity for the fund managers, the asset managers and the pension funds to diversify their risk and get exposure in an area where they couldn't before," said Bob Diamond, chief executive of Barclays.

"This is an important moment and inflection point to facilitate and make trade between Europe and China so much easier to transact. It makes it easier for UK and European companies to facilitate trade into China, and for Chinese companies to trade with European businesses," added John Peace, chair of Standard Chartered's board of directors.

The bankers also discussed the role of politicians in driving the initiative forward, with HSBC's group chief executive Stuart Gulliver suggesting it is the support of the UK government and its ongoing dialogue with China that has enabled London to speed ahead of other financial centres in laying claims to be the next trading hub for the currency.

"One of the reasons London has an advantage is the fact the UK government has stepped behind this initiative. If you want to be a hub in trading of renminbi, you need the government to engage directly with the Chinese authorities, then the private sector to step in behind it. We have both those factors happening here, against the backdrop of all the advantages London has in terms of time zone and concentration of financial institutions," said Gulliver.

But questions were raised about whether the Bank of England should take a more active role in supporting the development of offshore renminbi trading in London. Andrew Bailey, executive director and head of the Bank of England's new prudential business unit, said the Bank is very supportive of the initiative, but the building of the necessary infrastructure is the responsibility of the private sector.

Asked whether the UK would benefit from having an RMB swap arrangement with China, Bailey acknowledged it might be worth considering. "It's a perfectly good question, and if that is what is needed then the authorities should discuss it. But I wouldn't imagine the swap facility is the thing that leads the way, although it might turn out to be a useful supportive tool for liquidity in the market," he said.

This article first appeared on FXWeek.