“London is the logical place for it to happen,” Sands, 50, said in an interview yesterday. “I would hope it would happen this year but there are a number of things that have to come together to make it possible.”
China designated Hong Kong as the only current offshore center for yuan trading after allowing settlement of trade using the currency in 2009. That’s been a boon for banks includingStandard Chartered, which underwrote 18.9 billion yuan ($3 billion) of bonds denominated in the Chinese currency in Hong Kong last year. In addition to London, Singapore is also seeking to become a center for yuan trading.
“Singapore may well be playing a role as well but London is in a different position because London is the natural place as a bridge to the West,” Sands said in Beijing, where he’s attending a forum. “I think it will play quite a distinct role compared to either Hong Kong or Singapore.”
In Hong Kong, Standard Chartered has trailed only HSBC Holdings Plc (5) in underwriting Dim Sum bonds. HSBC underwrote 32.9 billion yuan of bonds in the city last year and more than 11 billion yuan this year, according to data compiled by Bloomberg. Standard Chartered has underwritten 5.6 billion yuan of Dim Sum bonds this year, the data show.
Yuan Settlement
The starting point for London would be to increase yuan trade settlement through the city, which would increase the amount of yuan deposits and create a market for yuan bond issuances, Sands said. The bank has “dedicated resources” in London dealing with the yuan, he said.
The Hong Kong Monetary Authority announced in January that it plans to lengthen trading of the yuan by five hours by June, allowing London-based institutions the opportunity to expand their share of yuan trading outside China.
That announcement was made as U.K. Chancellor of the Exchequer George Osborne visited Hong Kong and Beijing. Osborne, who said he would discuss development of an offshore yuan market in London with Chinese leaders, met with officials including Vice Premier Wang Qishanand central bank governor Zhou Xiaochuan during his January trip.
‘Critical Mass’
“At the moment, there isn’t that much renminbi in London so it will require a certain critical mass of activity to get it going,” Sands said yesterday. Renminbi is another name for the Chinese currency. “Our sense and our experience from Hong Kong is as soon as we get the component parts of infrastructure and the regulatory frameworks agreed that it will happen pretty quickly,” he said.
London isn’t the only place interested in becoming a yuan trading center. China’s central bank may allow Singapore to host a yuan-clearing bank, Deutsche Bank AG strategists Linan Liu and Dennis Tan wrote in a December report. Japan is also considering the set up of a market for yuan trading, the Nikkei newspaper reported last week.
In the fourth quarter, London accounted for 46 percent of yuan foreign exchange transactions done outside of Hong Kong and China, according to research by the Society for Worldwide Interbank Financial Telecommunications. London accounted for 30 percent of yuan payments sent and received outside of Hong Kong and China, according to SWIFT.
Hong Kong accounted for 78 percent of yuan payments sent and received outside China in December, according to SWIFT.
To contact Bloomberg News staff for this story: Henry Sanderson in Beijing athsanderson@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
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