UK chancellor Philip Hammond will announce the opening of London’s foreign exchange markets to direct access by Chinese banks during an official visit to Beijing over the weekend.
The Finanical Times reports that the foreign exchange scheme which commences trading next week will give Chinese banks direct access to London’s spot forex market, with the Shanghai Clearing House serving to guarantee trades.
Once it kicks off the initiative will allow Chinese banks to trade the US dollar for the British pound, euro and the Hong Kong dollar, with the People’s Bank of China expected to later permit trading of other currencies including the offshore renminbi.
At present Chinese lenders hoping to engage in forex trades in the UK need to deal directly with foreign banks in the over-the-counter market.
The OTC market primarily serves the interests of established, large-scale banks while excluding smaller lenders according to Jon Vollemaere, chief executive of R5, the London-based fintech firm responsible for providing Chinese lenders with the trading platform for the new scheme.
The opening of London’s forex markets to direct access by Chinese banks will give them the opportunity to dramatically expand their overseas connections.
“This creates a very big alternative for [Chinese] banks and will enable them to build relationships with multiple banks around the world,” said Vollemaere.
The initiative is part of efforts to bring new business to London’s financial sector in the lead up to Brexit, and will lend greater impetus to internationalisation of the renminbi by providing a new avenue for trading of the offshore Chinese yuan in London.
Beijing’s efforts to internationalise the renminbi have stalled of late despite the IMF’s decision last year to include it in its special drawing rights basket alongside the dollar, euro, yens and pound, as a result of the Chinese government’s overt intervention in the credit market and capital flows.
Data from global payments network Swift indicates that the renminbi’s share of international payments fell to 1.46% in October from 1.92% during the same period last year, as compared shares of 39.5% for the dollar and 34% for the euro.