Frankfurt and London have just been nominated as renminbi clearing and settlement hubs. The clearing banks, which yet have to be appointed, could take up work as early as late autumn. European treasurers can expect renminbi transactions to become less expensive.
The competition for becoming the first renminbi (RMB) clearing hub outside of Asia is fierce. Now, two European cities have the finish line in sight: While the German Bundesbank signed a memorandum of understanding with the People’s Bank of China (PBOC) to establish RMB clearing services in Frankfurt last Friday, the Bank of England followed suit on Monday, putting London on equal footing.
The agreement “makes the processing of RMB payments far easier for the German economy,” said Carl-Ludwig Thiele, member of the board of managers of the Bundesbank. According to bankers, companies can now expect costs associated with RMB payments to be lower since they can be processed in Germany or the UK. The agreement is also supposed to ease the use of RMB capital markets products such as dim sum bonds for European companies. However, the clearing banks for the Chinese currency have yet to be selected in either city. This task will be left up to the PBOC.
As soon as the decision about clearing banks is made, Frankfurt will be ready to offer the entire range of RMB products, said Lutz Raettig, president of the Frankfurt Main Finance initiative and head of the supervisory board of Morgan Stanley Frankfurt. The Bundesbank hopes that the clearing bank in Frankfurt can begin working as early as late autumn.
Germany and Great Britain hope this latest distinction will increase the share of RMB transactions completed in their respective financial capitals. According to data from financial messaging provider Swift, the UK was the leading offshore RMB hub in January 2014, not including China and Hong Kong. The UK accounted for nearly 26% of RMB payments while Germany ranked 8th with its 3% share. France and Luxembourg also aspire to become clearing centres for the Chinese currency: The former ranked 5th and the latter 7th in January 2014. In its bid for RMB clearing services, Frankfurt’s status as home of the European Central Bank and German Bundesbank may have made the difference.
Along with the currency clearing agreement, Deutsche Börse, the operator of the Frankfurt stock exchange, signed a separate agreement with the PBOC that will facilitate access to European capital markets and stock listings for Chinese issuers and investors.