China and England agree to a reciprocal 3-year RMB currency swap arrangement

The arrangement will be used to finance direct investment between the UK and China.

According to a release, People’s Bank of China Governor Zhou Xiaochuan met Bank of England Governor Mervyn King during Governor King’s visit to Beijing. They agreed to facilitate discussions on the establishment of a reciprocal 3-year, renminbi/sterling currency swap arrangement.

The arrangement would be used to finance trade and direct investment between the UK and China and to support domestic financial stability should market conditions warrant. They have agreed that the Bank of England and the People’s Bank of China would work together to sign the final agreement shortly.

Commenting, Governor King said: “London is growing rapidly as a centre for RMB business. The establishment of a sterling-renminbi swap line will support UK domestic financial stability. In the unlikely event that a generalised shortage of offshore renminbi liquidity emerges, the Bank will have the capability to provide renminbi liquidity to eligible institutions in the UK. Our announcement today marks a significant milestone in constructive bilateral dialogue between the Bank of England and the People’s Bank of China. I am grateful to Governor Zhou and the staff at the People’s Bank of China for their contribution to this collaborative dialogue.”

The UK Chancellor of Exchequer George Osborne said “This agreement between the Bank of England and the People's Bank of China is an important step that cements London as the western hub for the fast-growing Renminbi market. It is another sign that in the global race Britain is seen as open for business by emerging and established markets alike. We have already seen evidence in 2013 of a significant increase in Renminbi trade in London, and today’s announcement supports Britain's ambition to build a thriving Renminbi market in London.”