The Bank of England and the People’s Bank of China are negotiating a three-year arrangement expected to encourage trade between the UK and the Asian superpower.
The deal would allow the two central banks to swap currencies and companies to settle trade in yuans (also known as renminbi, which is not fully convertible to other currencies) rather than US dollars.
Chancellor George Osborne said: “This agreement cements London as the Western hub for the fast-growing renminbi market.” Last year, the Treasury said it would work to make the capital the leading centre for trading the yuan outside mainland China and Hong Kong.
China has already signed similar agreements with Brazil, Australia, Japan and other trading partners.
Sir Mervyn King, governor of the Bank of England, commented: “In the unlikely event that a generalised shortage of off-shore renminbi liquidity emerges, the Bank will have the capability to provide renminbi liquidity to eligible institutions in the UK.”
