London to become centre for trading in Chinese yuan
China takes first steps to move currency onto world stage
Beijing agreed Tuesday to make London a centre for handling investments denominated in yuan, making it the first financial centre outside of China to handle the tightly controlled currency.
The announcement came Tuesday in the middle of a five-day British trade mission to China led by Chancellor of the Exchequer George Osborne.
Beijing has ambitions to expand use of the yuan for trade and investment.
London is now ahead of any other financial centre in the race to become an important hub for yuan trading, after the Chinese central bank granted London-based institutional investors a quota of 80 billion yuan ($12.7 billion) to invest in Chinese stocks.
China, which holds $1.3 trillion in U.S. treasury bills, is said to be deeply angered over the U.S. shutdown and threat of default.
China raises red flags over U.S. shutdown
Yesterday, Xinhua, China's official news agency advocated a "new world order" with reduced reliance on the American dollar and the U.S. economy.
"It is perhaps a good time for the befuddled world to start considering building a de-Americanised world," the Xinhua commentary said.
"Instead of honouring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies."
The rhetoric may be a sign that Beijing is now confident enough to push the yuan as a trading currency and an alternative to the U.S. dollar. The currency is currently pegged to the U.S. dollar and cannot be directly exchanged for most other major currencies.
Osborne said China's state-owned banks will be allowed to expand their operations in Britain by setting up wholesale branches.
Britain and China signed an agreement in June to have their central banks swap 200 billion yuan for £20 billion ($32 billion), giving U.K. financial institutions more access to large amounts of yuan than had been available in the past outside of China.
Beijing courts European Central Bank to trade yuan
Osborne also said via his Twitter account that state-controlled Industrial & Commercial Bank of China Ltd. planned to issue a yuan-denominated bond in London, which would further encourage yuan use there.
Many international deals with China require a conversion to U.S. dollars and before London, only Hong Kong could handle such transactions.
Beijing is also courting the European Central Bank with an agreement this month to swap 350 billion yuan for 45 billion euros, suggesting Frankfurt may be next in line to become a centre for investment in China.
with files from the Associated Press