Boost for City as Sir Mervyn King does currency swap deal with Bank of China

The Bank of England today took a crucial step towards boosting the City as a centre of trading in the Chinese renminbi after agreeing a currency swap deal with the Bank of China.

The announcement of the three-year swap — to allow Threadneedle Street to draw down renminbi from China’s central bank to supply to UK firms and vice versa — came after talks between Governor Sir Mervyn King and his counterpart in Beijing.

Bankers have long called for a swap to allay fears over a lack of liquidity in China’s tightly-controlled currency, which has hampered trading in the renminbi. The Bank of England had resisted as it usually reserves swap lines for emergencies.

A Standard Chartered spokesman said the deal “will have a positive psychological effect on the market in the City and encourage more companies to do business in renminbi.” HSBC UK economist John Zhu said: “This will provide greater confidence for businesses that trade with China and represents a positive step to improving convertibility between sterling and renminbi.”

Hong Kong currently has 80% of off-shore renminbi trading, with London and Singapore sharing the rest.