LME Clear, the London Metal Exchange’s (LME) clearing and settlement division, has announced that from today onwards, the clearing house will be accepting offshore renminbi (CNH) as eligible cash collateral after having been given the nod of approval by the Bank of England.

With the announcement, LME Clear now accepts five currencies as cash collateral: US dollar, sterling, euro, yen as well as offshore renminbi.

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Collateral is used to offset the risk of default by one party. As such, clearing houses hold guarantee funds, which are capitalised from collateral deposits from firms, the values of which pertain to the credit worthiness of the firms involved.

LME Clear came into existence only recently, as new regulatory reforms push for central clearing in derivatives markets. The clearing house was thus engineered and designed in consultation with the LME’s members and effectively christened on September 22, 2014.

The renminbi is on its way to becoming one of the world’s most widely used currencies, and we are pleased to be able to help our members take advantage of the opportunities.

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“This is an important development for the LME and LME Clear, and it highlights the stronger ties and synergy between Hong Kong and London since the LME became part of the HKEx Group,” said Charles Li, Chief Executive of Hong Kong Exchanges and Clearing (HKEx), the LME’s parent company.

“The renminbi is on its way to becoming one of the world’s most widely used currencies, and we are pleased to be able to help our members take advantage of the opportunities arising from the renminbi’s internationalisation,” said Trevor Spanner, Chief Executive of LME Clear.

Indeed, the events follow a broader narrative; namely, the internationalisation of the Chinese currency. Alongside the economic rise of China, the internationalisation of the RMB has been a part of a wider reform process.

Opening up the currency to international market forces is seen as an essential ingredient in the progressive development and liberalisation of domestic financial markets. The continued  international usage of offshore RMB further contributes to the currency’s “store of value”, taking it one step closer to becoming a truly global reserve currency.

Late last year, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) revealed that the Chinese yuan became the 5th most popular payment currency in the world.