Yuan Walks the Globe

The U.K. joined Hong Kong and Taiwan in being allowed by China to take part in a program allowing offshore yuan to be invested in Chinese securities, a move that bolsters efforts to internationalize the currency.

China approved an 80 billion yuan ($13 billion) quota for investors in London to buy onshore assets under the Renminbi Qualified Foreign Institutional Investor scheme, Chancellor of the Exchequer George Osborne said at a briefing in Beijing.

People’s Bank of China Governor Zhou Xiaochuan is opening up the nation’s capital markets as he seeks a greater role for the yuan in global trade and investment. Shanghai inaugurated a pilot free-trade zone last month that will allow trials of yuan convertibility under the capital account and permit overseas companies to sell debt denominated in the local currency.

China started the program in 2011 as a way to encourage greater worldwide usage of yuan, allowing investors holding the currency overseas to buy domestic bonds, stocks and money-market instruments. Regulators said in July they would expand it beyond Hong Kong and Taiwan to the U.K. and Singapore.

Yesterday’s agreements make the pound the fourth major currency to have direct trading links with the yuan, after the dollar, Japan’s yen and Australia’s dollar, putting London ahead of Frankfurt and Paris in a bid to become Europe’s hub for the Chinese currency.

In June, the Bank of England became the first among European central banks to establish a currency-swap facility with China, supporting yuan users by providing liquidity when needed.

‘Western Hub’

Osborne said yesterday that further agreements on yuan settlement and clearing are planned. Talks will begin to enable Chinese banks to establish wholesale branches in the U.K. for the first time, allowing them to scale-up their business activities, Osborne said.

36% Rally in Yuan

The yuan touched 6.1007 per dollar yesterday in Shanghai, the strongest since the government unified official and market exchange rates at the end of 1993. The currency has strengthened 36 percent against the dollar and 47 percent versus the pound since a peg to the U.S. currency was scrapped in July 2005.

The daily value of yuan trading in London now stands at about $5 billion a day, double the daily volume in 2012, Osborne said, citing data by HSBC Holdings Plc. HSBC forecast in March that the currency will be fully convertible within five years and that a third of China’s total trade will be settled in yuan by 2015, making it one of the top three global trade settlement currencies by volume.

The nation’s 25.4 trillion yuan onshore bond market offers more choice, better liquidity and higher yields than are available in Hong Kong, where there is 253 billion yuan of Dim Sum debt outstanding, according to data compiled by Bank of China. Ten-year government bonds yielded 4.07 percent in Shanghai yesterday, compared with 3.67 percent in Hong Kong.