The Renminbi’s Grand Tour

By permitting two clearing banks to access renminbi onshore, Chinese officials are effectively subsidizing their London and Frankfurt operations and encouraging direct sterling and euro trades. But London and Frankfurt would be reckless to bank on rapid growth in their renminbi transactions.

REYKJAVIK – European and Chinese officials have made two notable announcements in recent weeks. On June 18, China’s second largest financial institution, China Construction Bank, was designated as the official renminbi clearing bank for London. The next day, the Frankfurt branch of the Bank of China, the country’s largest commercial bank, received the same designation for the eurozone.

Both announcements were greeted with great acclaim. British Chancellor George Osborne hailed the creation of a London clearing bank as “hugely important” for the financial future of the City. Joachim Nagel of the German Bundesbank lauded the Bank of China announcement as a “milestone on the road toward creating a renminbi trading center in Frankfurt.”

We should expect these kinds of enthusiastic pronouncements from European officials, who are desperate for good news, whatever its source. But should the rest of us care? After all, banks, firms, and even individuals already can buy renminbi for their pounds and euros. A range of financial institutions, both locally and in Hong Kong, have long stood ready to provide this service.

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