France and Luxembourg join race to become Europe's renminbi hub

The French and Luxembourg central banks struck deals with the People's Bank of China (PBoC) over the weekend that will see both countries welcome renminbi clearing banks in the coming months – intensifying the competition among Europe's biggest financial centres to become major offshore markets for the Chinese currency.

The PBoC has already designated clearing banks for London and Frankfurt this month – China Construction Bank and Bank of China respectively – and is working fervently to bolster the links between China and Europe.

Paris will not be far behind. Banque de France signed a memorandum of understanding (MoU) with the PBoC on June 28 that will lead to "the creation of a renminbi payment system" in France's capital city.

The central banks "agreed to coordinate and cooperate on supervision and oversight, information exchange, and assessment and improvement of the [payment] system," according to a statement from the Banque de France.

It follows an earlier decision by the Chinese authorities to grant French institutional investors a quote of 80 billion renminbi ($12.75 billion) for investing in China's domestic capital markets.

The decision "allows French insurance companies, banks, asset management firms and investment funds the possibility to invest directly in the Chinese domestic financial market and therefore to develop their activities in China," the Banque de France explained.

This is the first time this kind of investment – established though China's Renminbi Qualified Foreign Institutional Investors programme – has been approved in a eurozone country, though the UK was also granted a 80 billion renminbi quota in October.

On June 29, the PBoC then signed an MoU with the Central Bank of Luxembourg on the sidelines of the Bank for International Settlements annual general meeting in Basel, laying the foundations for a fourth clearing bank in Europe.

The PBoC released similar statements about both deals, insisting they would be "beneficial for businesses and financial institutions [that conduct] RMB cross-border transactions" and would "further promote trade and investment liberalisation and facilitation".