2013-02-25 – London
On Friday 22nd February, the Bank of England struck a deal between London and Beijing to encourage trade in the renminbi, which should help settle the fears of a liquidity shortage and kick-start lending in the Chinese currency.
Sir Mervyn King, governor of the Bank of England, has been in talks with the People’s Bank of China in a three-year, reciprocal swap that he says would support domestic financial stability. The swap should help finance trade and investment in the renminbi and instil greater confidence for UK businesses dealing with China.
The arrangement also cements the continuing growth of the renminbi in becoming a significant player in global trade. The governor of the Bank of England has suggested this deal represents an important landmark between the two countries that would be used to finance direct investment between them along this newly formed sterling-renminbi swap line.
In essence, the deal has given the Bank the ability to provide renminbi liquidity to eligible institutions in the UK, should there be any offshore shortage.
In our opinion, the new swap line could provide London with the competitive advantage it has been seeking and could help strengthen the business relationship London has with China and enhance future trade.
