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Experts: London unlikely to become next RMB hub

By Cecily Liu (China Daily)

15:42, December 14, 2011

LONDON - London's hopes of soon becoming a center for the offshore use of the yuan have been impeded by the findings of a Bank for International Settlements (BIS) report on Sunday, experts said.

The BIS, which is a bank for various countries' central banks, warned that the offshore use of the yuan could undermine the Chinese government's work to control inflation.

That would happen, the BIS explained, if yuan raised through offshore yuan-denominated bonds were to re-enter China, injecting more liquidity into the country's economy.

"The (bank's) report reaffirms the belief that China probably will not develop the next offshore renminbi center soon," said Stephen Gallo, head of market analysis at the London-based financial-service provider Schneider Foreign Exchange.

"Given that China is currently facing the problems of high asset prices and hot money inflow, internationalizing the renminbi too quickly puts its central bank's ability to control credit at risk," said Gallo, adding that it may be another three to 10 years before the yuan can be traded in London.

London, Singapore and New York are all vying to become the next offshore center of yuan use, trying to follow the successful move Hong Kong made in that direction in 2009.

London's attempts to become a yuan center received a boost in September when Vice-Premier Wang Qishan met George Osborne, UK chancellor of the exchequer, and welcomed private-sector interests in the development of an offshore market in London.

"We agreed to collaborate on the development of renminbi-denominated financial products and services in London, and our regulators stand ready to support this market," the chancellor said at a news briefing following the dialogue.

But this "collaboration" has seen little progress so far.

Stuart Fraser, policy chairman at the City of London Corporation, the city's municipal government, wrote in an e-mail on Monday that London has advantages that give it a good chance of becoming a Western yuan hub.

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