Switzerland plans to bid to become an offshore yuan trading center in Europe, competing with Frankfurt and London to corner trade in the Chinese currency.
“It is in Swiss interest to have a renminbi [yuan] hub in the center of Europe,” Swiss Economy Minister Johann Schneider-Ammann said in Beijing yesterday after signing a free-trade agreement with Chinese Commerce Minister Gao Hucheng (高虎城).
While no official talks have taken place, Schneider-Ammann said he hoped the idea would become “more serious” in the coming weeks or months.
Leaders of the world’s second-largest economy are promoting greater use of the yuan in international trade and finance to decrease the country’s dependence on the US dollar and move toward making the currency convertible for investment purposes.
Zurich is vying with London, Paris and Frankfurt for the top spot in Europe, while Canadian banks are considering a plan to make Toronto the first North American trading hub.
“The Swiss side, the Swiss financial system, in particular the Swiss National Bank, we are interested in getting the chance to negotiate with the Chinese about a renminbi hub in the center of Europe, in Switzerland,” Schneider-Ammann said.
London, the center of the world’s US$4 trillion-a-day market for foreign-exchange trading, claims to have the edge in Europe after the Bank of England signed a three-year currency swap line with the People’s Bank of China (PBOC) last month, becoming the first among European central banks to establish such a facility with Beijing.
An organization representing Frankfurt’s financial industry predicted this week the European Central Bank would get a swap deal that would allow it to exchange euros for as much as 800 billion yuan (US$130 billion) — four times the size of the agreement obtained by the Bank of England.
To have a trading hub, a country’s central bank must have an agreement with the PBOC to swap its currency for yuan. Such an accord gives a central bank access to yuan funds to backstop companies doing business with Chinese partners.
Yuan transactions account for less than 1 percent of global trades, compared with about 84 percent combined for the US dollar, euro, pound and yen, according to the Belgium-based Society for Worldwide Interbank Financial Telecommunication, or Swift, which provides messaging services to banks.
By 2015, a third of China’s cross-border business will be settled in yuan, making the currency the third most traded, after the US dollar and the euro, HSBC Holdings PLC said.