The People’s Bank of China and the Bank of England signed a Rmb200bn (US$32.6bn) bilateral currency-swap agreement on June 22.
The three-year facility is another step forward in the internationalisation of the renminbi, and comes after the two central banks opened discussions last year.
“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 facilitate renminbi liquidity to eligible institutions in the UK,” said outgoing BoE governor King.
The move will boost London’s ambitions to become a key trading centre for the Chinese currency.
“The announcement overnight reinforces the commitment by the authorities to expand the depth and range of the offshore renminbi. And the bilateral currency swap will help London eventually become a fully fledged offshore RMB trading center, just like Taiwan and Singapore,” said HSBC analysts in a research note.
They noted that renminbi liquidity in Hong Kong had stabilised following the Hong Kong Monetary Authority’s introduction of a renminbi stand-by facility, made possible by a Hong Kong dollar/renminbi swap line signed between the HKMA and the PBoC. That adds to the incentive for other central banks to establish similar swap lines as the currency becomes a bigger part of the global financial system, according to HSBC.
Including Britain, around 20 jurisdictions have agreed bilateral swap lines totalling over Rmb1.7trn with the PBoC. Hong Kong tops that list with a Rmb400bn facility.