London, Sept. 12 2014 (TSR) – British Chancellor of the Exchequer George Osborne announced Friday that the UK government plans to issue the “world’s first” Renminbi (RMB) denominated sovereign bond outside China “in the coming weeks”.
“I can now announce that the UK government intend to be the first national government outside of China to issue a bond in China’s currency. We issued bonds in U.S. dollar before, now we will be issuing a bond in RMB,” said Osborne in the press release.
The announcement emerged as part of the sixth UK-China Economic and Financial Dialogue (EFD) in London last week as Chinese Vice Premier Ma Kai and Osborne concluded the meeting.
Osborne described this dialogue outcome as “a historic moment” and a statement of British confidence in the potential of the RMB to become “the main global reserves currency”. The move reflects the growing economic bonds between the UK and China, the UK Treasury said.
“And let me be clear, as China becomes a bigger and bigger part of the world economy, their currency is going to be used around the world. We here in Britain understand that, and we want us to be the first country in the west to seize the opportunities that it will bring,” declared Osborne.
Meanwhile, the issuance of Chinese currency bond means jobs and investment in Britain, which the government’s long-term economic plan is all about, noted Osborne.
“Our long term economic plan is working, but the job isn’t done,” said George Osborne, the UK’s chancellor of the exchequer. “We need to export to fast-growing economies like China, and attract more investment to our shores. To do that, we need to make sure China’s currency is used and traded here, as that will be not only good for China, but good for British jobs and investment too.”
The bond is intended to be a one-off issuance and the proceeds will be used to finance the UK government’s reserves of foreign currency, the UK Treasury said.
The size of the bond will be confirmed at the time of issuance, but the UK Treasury said that it would be large enough to be given ‘benchmark’ status.
The bond will be used to add RMB to UK foreign currency reserves, which currently consist of US dollars, euros, Japanese yen and Canadian dollars.
The UK is already the fastest growing market in Europe for RMB payments, more than doubling volumes in the year to July 2014. In 2013, RMB foreign exchange trading in London averaged $25.3 billion per day, which was a 50% increase from 2012.
China Development Bank (CDB) also announced the successful issuance of its own RMB-denominated bond in London as part of the summit; the first by a quasi-sovereign outside of Greater China. The state-backed bank also intends to open a representative office in London, its first in Europe, Osborne said.
Alongside the summit, Industrial and Commercial Bank of China (ICBC) was approved for a wholesale branch licence by the UK’s Prudential Regulation Authority (PRA). Although the licence will not allow ICBC to take deposits from retail customers, the world’s biggest bank will become the first Chinese bank to open a UK branch in over 50 years. China has also granted Lloyd’s of London a licence to open a Beijing branch, allowing it to upgrade its existing representative office and do more business in China’s main insurance hub.
The UK will also be included as a destination for investment as part of China’s upcoming RMB-qualified domestic institutional investor programme, allowing institutional investors in China to invest into financial markets in the UK and for RMB funds to flow from China to the UK. The summit also included discussions on infrastructure, trade and tourism.