Currencies, Emerging Markets, Funds / ETFs, Stocks

UK And China Deepen Financial Links: London Launches Europe’s First Yuan-Denominated ETF

Yuan China RenminbiThe UK has deepened its financial links with China on Wednesday and has become the first country in Europe to launch a yuan-denominated money market fund, which allows investors to gain direct exposure to China’s interbank lending market, Reuters reports.

The exchange-traded fund (ETF) from China Construction Bank International — China’s second largest bank — will be domiciled in the UK, supported by HSBC and Germany’s Commerzbankis, and listed on the London Stock Exchange (LSE).  The ETF will be available for trading by using pounds, euro, and yuan, Britain’s government said.

As Reuters reports:

London has been keen to attract Chinese banks and encourage offshore trade in the yuan to bolster its position as the world’s main centre for foreign exchange trading.

Last year Britain became the first Western government to issue a yuan-denominated bond. On Tuesday the finance ministry’s chief economist said he viewed the yuan’s possible inclusion in the International Monetary Fund’s currency basket as a “very live” issue.

“The launch of this (fund) will provide further opportunities for British and other global investors to invest directly into China,” said Andrea Leadsom, a junior British finance minister.

Last year the UK was the first country in the West to issue a yuan-denominated bond, also the Bank of China opened up yuan clearing hubs in London and Frankfurt.

China’s yuan has recently emerged as one of the world’s top five payment currencies, overtaking the Canadian dollar and the Australian dollar, according to global transaction services organization SWIFT.

Earlier this month, China announced that its long-awaited global payment system to process cross-border yuan transactions was ready and could launch as early as September.

The launch of the China International Payment System (CIPS) will pave the way for internationalizing the yuan and should greatly increase global usage of the Chinese currency by cutting transaction costs and processing times.

CIPS, will be a global payments superhighway for the yuan and will replace an assortment of networks that make processing renminbi payments a more cumbersome process.

CIPS will allow for companies outside of China to clear yuan transactions with their Chinese counterparts directly, thus reducing the number of stages that a payment needs to go through.

China — the world’s second largest economy — has been pushing the yuan as a rival to the U.S. dollar in the global financial system since 2010.

This week Chinese Premier Li Keqiang and Chinese Central Bank Governor Zhou Xiaochuan have reiterated calls for the Chinese yuan to be included in the International Monetary Fund (IMF) Special Drawing Rights (SDR) basket.

IMF Managing Director Christine Lagarde has recently commented on the Chinese yuan’s inclusion into the SDR basket saying that it “clearly belongs,” “It’s not a question of if — it’s a question of when,” and at “some point” it would be incorporated.

The Chinese-led Asian Infrastructure Investment Bank (AIIB) — a potential rival to the Western-led IMF and World Bank — has recently gained much traction, as the bulk of the U.S.’s Western allies have flocked to join the bank, much to the embarrassment of the Obama administration.


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