Various Chinese Banknotes

In its continued push to make the yuan a global currency, China’s central bank said Sunday it plans to designate clearing banks for its currency in Paris and Luxembourg, as the two financial centers battle with London to become the leading European offshore yuan-trading city.

The People’s Bank of China announced the move in two separate statements Sunday. It didn’t say when it would designate the clearing banks.

The French and Luxembourg central banks said Sunday they had signed agreements with PBOC allowing for greater cooperation in the oversight of their domestic yuan market.

The weekend moves are the latest salvos in the race to win a major share of business in cross-border transactions in the Chinese currency. Singapore and Sydney are also vying for a significant share of the global yuan market, which is expected to expand rapidly along with China’s fast-growing economy.

On June 18, the PBOC appointed China Construction Bank Co., one of the country’s top-four state-owned banks, to clear yuan-related transactions in London. It became the first yuan clearing bank in a European country.

Opening a clearing bank is a critical step in developing an offshore yuan-based business. The designated banks will be able to supply yuan liquidity in case of a shortage by directly accessing China’s onshore currency market.

The Chinese central bank said that setting up the clearing banks will benefit Chinese, French and Luxembourg ” businesses and financial institutions in using the renminbi [yuan] for cross-border transactions and in further promoting trade and investment.”

French authorities have openly pushed for Paris to become a center for yuan transactions.

In March, China also granted 80 billion yuan ($12.9 billion) of quotas to French financial institutions that enable direct investment in the Chinese domestic financial market.

The Bank of France said Sunday the latest decisions by the PBOC “confirm the prominent role of the French market place” in cross-border use of the currency.

Luxembourg, home to a powerful asset-management industry, has built strong ties with Chinese investors in recent years and currently hosts the European headquarters of China’s three leading banks.

Last year, former Luxembourg Finance Minister Luc Frieden cited figures showing that the country was the leading center for yuan business in the euro zone, with some 40 billion yuan in deposits, 62 billion yuan in loans from Luxembourg banks and 220 billion yuan under management in the fund industry.

For China, the move to allow the yuan to be used more freely abroad aims to boost demand for the currency and reduce the amount of dollars entering the country. China still maintains a tight grip on the yuan’s value, with its trading strictly controlled in the mainland market.

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