January’s confirmation by the Treasury that it intends to establish a forum with the Hong Kong Monetary Authority to develop international trading of the Renminbi was cheered by two banking behemoths. London-based HSBC and Standard Chartered were quick to give the thumbs up to plans by Chancellor George Osborne to make an early move to harness the future potential of the Renminbi in London.
But now that the Chancellor is back in the UK, scepticism has crept in as to whether London can keep hold of its crown as the hub of global currency trading. Clem Chambers, chief executive officer of markets information platform ADVFN.com, says while the intentions are good, the outcome is likely to depend on more tactical issues such as market structure, levels of regulation and practicalities.
He explains: “As the UK moves toward a more invasive regulatory regime, it will be difficult for London to develop as the hub for the Chinese currency. It is more likely countries with a ‘lighter touch’ environment will end up with this business. London has a chance, yet in all likelihood it will snatch defeat from the jaws of victory.”
Of course, not everyone shares Mr Chambers’ pessimism, although the positivity towards the deal comes largely from different indicators. David Clark, chairman of the Wholesale Markets Brokers’ Association, which represents many of the world’s largest inter-dealer brokers, says the deal is telling in the sense that it is a reaffirmation of the importance of London.
He says: “It demonstrates that London’s position as the world’s leading forex centre is of significant importance to the Chinese government in its considerations and is the best place to make the Renminbi more internationally convertible.” That may well be true, but others in the market don’t believe the deal is that straightforward.
Critics say that consideration has to be given to the current Chinese leadership’s position on currency restrictions which would effectively mean that any full convertibility and free capital flow would be a long way off. Marc Pussard, head of trading at Tradenext is among them. He says that tinkering with allowable exchange rate currency bands is a far cry from full internationalisation of the Yuan.
“Given China’s regional patriotism, it seems unlikely that China would offer London exclusivity over its offshore Renminbi market,” he says. “More likely is that London, given its geographical position of spanning both the Asian and American time zones, will continue to be the leader in foreign exchange dealing.”
Rule Financial’s trading specialist David Holcombe agrees, saying the Chancellor’s plans to make London an unavoidable venue for Renminbi trading positions is noteworthy. He concludes: “The latest Bank of England stats show London is still a primary forex market. This deal would reinforce that status and leverage London’s significant ‘local’ human and infrastructural capability.
“The size of the prize is massive. Power and influence are moving East, from a hitherto dominant Western world.”