Sunil Bhatia, head of clearing and FX products, APAC, Bank of America Merrill Lynch (pictured):
In June, a reciprocal three-year, Rmb200 billion pound/renminbi currency swap line was established with the Bank of England — the first with a G7 country. The swap is a natural step in the process to enable London as the renminbi offshore centre in Europe, but the establishment of a renminbi clearing system in the UK is still off the table, which will be to Hong Kong’s benefit.
 
The swap line is designed to promote bilateral trade between the UK and China and to support financial stability should market conditions warrant. Currently more than 90% of renminbi payments from London are related to institutional transactions. This suggests that London is more of a trading hub. However, the swap lines create a degree of confidence in renminbi liquidity, which is likely to be accentuated by the recent announcement establishing direct conversion between the pound and the renminbi.  
 
With the regulations now permitting overseas investments in China’s onshore bond and equity market, there is potential scope for financial institutions to begin offering additional products and investment options… [which] will in-turn potentially incentivise use of renminbi trade settlement in the UK. This build-up usually takes some time and will not happen overnight.
 
Another consideration for the adoption of renminbi globally is the China International Payment System (CIPS). CIPS is likely to be developed with the intention of facilitating cross-border renminbi clearance among market players. The goal of CIPS will be largely to simplify and standardise clearing processes for foreign entities. We believe this will inevitably lead to a better understanding of the regulations governing renminbi and therefore provide more efficient execution of cross-border payments and settlements. However, at this stage it is still too early to speculate on its potential impact on clients, its launch date or the technical aspects surrounding it.