BOE ready to set up yuan swap line

The bank's Executive Director for Banking Services, Chris Salmon, told a meeting of senior bankers in London that the move was aimed at underpinning a developing offshore market in yuan trade out of London that Britain is keen to encourage.

It would be the latest in a string of bilateral currency agreements that China has signed in the past three years to promote use of the yuan in trade and investment.

British officials have previously shied away from such a deal because the renminbi (yuan) is not freely exchangeable. But there have been signs that China is moving to open up trading of its currency and Salmon said the bank was more interested in helping yuan business to flourish.

“The Bank would welcome the development of the offshore RMB market just as it would any other legitimate market innovation, and we would not want to inhibit that outcome inadvertently through gaps in our operational framework,” he told the London Money Market Association's Executive Committee in the text of his speech provided by the bank.

“To remove any residual uncertainty about our attitude: the Bank is ready in principle to agree a swap line with the PBOC (People's Bank of China), assuming a mutually agreeable format can be identified.”

European and U.S. officials have been pressing China for years to do more to open up the yuan to market forces, saying its artificial weakness was one of the key imbalances of the global economy.

Beijing is slowly delivering, although it still keeps a tight rein on gains for the currency for fear it will weaken an economy that has been the biggest engine of global growth for a decade.

“This is part of the internationalization of the RMB, this is China moving forward to internationalize its currency,” said David Bloom, head of FX strategy at HSBC.

Britain, always anxious to bolster London's status as Europe's biggest financial center, launched an offshore yuan currency and bond market to great fanfare last year and a swap deal would cement its role as the leading center in the Group of Seven industrialized nations for offshore yuan trade.

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