The People's Bank of China (PBOC) recently allowed direct trading between the yuan and the British pound and authorized the China Construction Bank to be the clearing bank for RMB business in London. Following the Japanese yen, Australian dollar, New Zealand dollar and U.S. dollar, the British pound has become another currency that can directly trade with the RMB.

RMB is popular in international market

Since China launched trials in settling cross-border trade accounts in RMB in 2009, the internationalization of RMB has continued to accelerate.

In tandem with the China's growing economic strength, RMB is enjoying increasing popularity in international markets. According to research on the offshore RMB market conducted by the Bank of China (BOC), in the first quarter of this year the BOC off-shore RMB index grew from 0.91 of the end of last year to 1.07. This represents an increase of 81 percent compared with the first quarter of 2013. The scale of the offshore RMB market continues to expand, and London, the world's biggest foreign exchange transaction center, has taken two thirds of the total volume of RMB foreign exchange trading outside the Chinese mainland and Hong Kong.

Direct clearing can avoid currency risks

Huang Bijuan, Vice President of HSBC China, said that direct trading between the yuan and the British pound is an important step toward the internationalization of the RMB, which will further promote the use of RMB in Britain.

Zeng Gang, Director of the Bank Research center of Chinese Academy of Social Science, told the media that direct clearing can lower costs and avoid various currency risks, and the RMB can play a more important role in clearing. It will also benefit the real economy.

Financial expert Zhao Qingming points out that previously, the trading procedure between the yuan and the British pound was complicated and costly, requiring the involvement of the U.S. dollar. Direct trading can help lower exchange costs and transaction risks, and facilitate trade between China and Britain, in addition to reducing the reliance on the U.S. dollar and further promoting the internationalization of the RMB. 

The article is edited and translated from《人民币直接交易降低兑换风险》, source: People's Daily Overseas Edition, author: Zhou Xiaoyuan.