The Chinese central bank, the People’s Bank of China, has signed a separate memoranda of understanding (MOU) with two of its European counterparts over the weekend to create yuan clearing centers on the continent, it was announced today.
Banque de France announced it has signed a MOU with the People’s Bank of China to set up a clearing center for Euro/CNH in Paris after the Central Bank of Luxembourg made a similar announcement less than a day before. It is still unknown when the designated clearing banks will be announced, but they can be expected to be local branches of Chinese state-owned banks.
The Chinese Central bank presented the move as a service to importers and exporters taking part in cross border trades between Europe and China, who will find it easier to conduct deals without the need to convert to US dollars as an intermediary.
An objective look at this development can only be seen as part of a larger push by the Chinese to sway the world away from its dependence on the USD and toward establishing the yuan as a competing global reserve currency on par with the dollar and euro.
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Two weeks ago, the Chinese Premier, Li Keqiang, visited the U.K and met with top British politicians, business people and analysts who promised greater economic cooperation between the two countries. The most significant item on the agenda was the British desire to turn London into the largest yuan clearing center in the world outside of East Asia. For this reason, it was announced during Keqiang’s trip that the People’s Bank of China has authorized the China Construction Bank’s London branch to serve as a clearing bank for yuan to pound transactions.
The USD/CNH is the hottest currency pair FX traders are excited about, judging by the torrent of institutional and retail brokers rushing to offer it recently. The yuan is also the most important currency for international trade in many countries, only following the US dollar, as China is the source of most imports around the world and the destination of most commodity exports. But in the financial markets the yuan does not yet play a role as important as that of the USD, Euro, GBP or even the Japanese yen. The reason for this is that it’s still pegged in a band around the dollar.