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BoE, PBOC to sign currency-swap deal

LONDON - The Bank of England and the People’s Bank of China plan to sign a deal soon on a three-year currency-swap arrangement as London pushes to become an offshore center for yuan trading.

BoE Governor Mervyn King and his PBOC counterpart, Zhou Xiaochuan, met in Beijing on Friday, and their central banks will “facilitate” discussions on the yuan-sterling swap, the BoE in London said in an e-mailed statement.

“The arrangement would be used to finance trade and direct investment between the two countries and to support domestic financial stability should market conditions warrant,” the BoE said. King and Zhou agreed to “work together to sign the final agreement shortly.”

A role for London as an offshore center for yuan trading would help it to deepen links with the world’s second-largest economy. UK Chancellor of the Exchequer George Osborne welcomed today’s announcement, which he said will “cement” London as a western hub for the yuan market. China already has currency-swap agreements with countries including Australia, South Korea and Malaysia.

“It’s very significant for yuan internationalisation,” Nathan Chow, a Hong Kong-based economist at DBS Group Holdings, said by telephone. “Unlike Thailand or Mongolia, the UK is an international financial centre and a hub for Europe. The low usage of yuan in global trade is inconsistent with China being the world’s second-largest economy.”