BERLIN/FRANKFURT, March 27Thu Mar 27, 2014 7:56am EDT
BERLIN/FRANKFURT, March 27 (Reuters) - Germany's financial capital Frankfurt will become the first hub for renminbi payment transactions in Europe with the German and Chinese central banks set to seal the deal this week, two financial sources told Reuters, pipping a similar move by London.
The sources said on Thursday that the Bundesbank and the People's Bank of China are due to sign a memorandum of understanding during Chinese President Xi Jinping's state visit to Germany on Friday.
Such an agreement would make it easier for investors to complete financial transactions by increasing cooperation on international payments and establishing a clearing bank for China's currency as part of the deal.
There is currently no clearing service for renminbi trading outside Asia.
Beijing's tie-up with Frankfurt would not, however, be exclusive - Britain and China are due to sign an agreement on renminbi clearing and settlement next Monday, setting out how their two central banks will cooperate in establishing a clearing bank.
The Bundesbank declined to comment when contacted by Reuters but Bundesbank board member Joachim Nagel told German business daily Handelsblatt he was confident about Frankfurt's prospects.
"The discussions we've had so far make me very optimistic that Frankfurt will get a clearing bank," he was quoted as saying.
"That would, at the same time, be the starting point for establishing a yuan centre."
The renminbi is not yet freely tradable but by building up trading hubs outside of Asia, China is removing trade barriers. Until now business has mainly been conducted via Hong Kong.
Financial sources said subsidiaries of Chinese banks such as the Bank of China would be considered for the clearing bank.
A government source said the cooperation would include the sale of bonds and other Chinese financial products but not foreign exchange.
Exchange operator Deutsche Boerse has been pushing for a stronger role for Frankfurt as a European centre for financial market activities in China but said this would only happen if policymakers worked together as a team. (Reporting by Reinhard Becker, Andreas Kröner, Gernot Heller, Andreas Framke, Andy Bruce, David Milliken; Writing by Michelle Martin; Editing by Toby Chopra)