The Bank of China will set up a clearing bank in Frankfurt to foster trade in China's currency, the renminbi (also called the yuan). It's an important step toward internationalization of the currency.
China's central bank, the People's Bank of China, announced on Thursday in Beijing that the Frankfurt branch of the Bank of China Ltd. (one of the four biggest commercial banks in China) will be the designated clearing bank for renminbi-denominated trades in Germany's financial capital, a role it already plays in Hong Kong, Macau and Taipei. China Construction Bank Co. was on Wednesday named the renminbi clearing bank for London.
The German and Chinese governments agreed in late March 2014, during a state visit by Chinese leader Xi Jinping in Germany , to take steps to make Frankfurt a key center for renminbi trades. Frankfurt will be the first center for renminbi trading in the eurozone.
Investors to profit
Germany's central bank, the Bundesbank, said the move will make it easier for German companies to settle payments made in the Chinese currency.
At the same time, Asian investors will gain direct access to European capital markets. All sides expect that as a result, trade and business ties between China and Europe will be further strengthened.
Economists expect that as the renminbi becomes more freely tradable, it will gradually become an important reserve currency alongside the US dollar, the yen and the euro.
nz/hg (Reuters, dpa, Bloomberg)