London, one of the world's leading foreign exchange markets, will become a conduit for the internationalization of the yuan following a joint initiative by Hong Kong and Britain.
The Hong Kong Monetary Authority and the British Treasury announced yesterday at the Asian Financial Forum in Hong Kong the launch of a private-sector panel to explore cooperation in clearing and settlement systems, market liquidity and development of new yuan-denominated financial products.
The panel will bring together bank representatives from Hong Kong and London, including HSBC (0005), Standard Chartered (2888), Bank of China (3988), Deutsche Bank and Barclays.
They will meet twice a year, with the first meeting in Hong Kong in May.
In September, Britain obtained Beijing's nod to develop the City of London into an offshore yuan center.
Chancellor of the Exchequer George Osborne said yesterday a more prosperous China will be beneficial for Britain's goods and services.
He said while China's trade amounts to 11 percent of world trade, only 0.9 percent is settled in yuan.
Chief Executive Donald Tsang Yam- kuen said he is delighted that the private sector is getting involved "to foster cooperation between the two financial centers."
Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung said: "Offshore yuan business is huge, so Hong Kong needs cooperation with the outside.
"Even if London becomes another offshore yuan center, Hong Kong will maintain its central position in yuan business with its location and strong yuan pool."
Companies could choose to settle payment in yuan if banks in London were to offer such services.
Hong Kong will extend yuan settlement hours to 15 a day to match European demand by June.
Yuan trade settlement in Hong Kong last year amounted to more than 1.6 trillion yuan (HK$1.97 trillion).
HKMA chief executive Norman Chan Tak-lam said banks in Britain and Hong Kong have collaborated on yuan business, but the panel could offer infrastructure and policy support.
He said there is no such arrangement with New York at present.
HSBC Group chief executive Stuart Gulliver said: "Successful cooperation will support British businesses as they look East to the opportunities in Asia while supporting Asian businesses look West to Britain as a natural home for trade and investment."
Terence Chong Tai-leung, associate professor in economics at the Chinese University of Hong Kong, said: "London will complement Hong Kong in terms of yuan business rather than emerging as a competitor."