Switzerland should push to allow its banks to increase yuan financing for companies, according to the head of the Association of Foreign Banks in Switzerland.
The nation signed a free trade agreement with China in July, becoming the first European country to do so. The two states have also entered into a memorandum of understanding on financial market dialogue Swiss banks are interested in Zurich becoming a center for yuan trading as China seeks to take its currency global and their traditional business of wealth management faces an uncertain future due to a global crackdown on tax evasion.
“A free trade deal without a tradable currency doesn’t make sense,” Martin Maurer, secretary general of the association, told journalists in a briefing today. “Corporate finance in yuan is an area Swiss banks can really leave their mark.”
The move would entail negotiating a swap agreement between the two countries’ central banks and establishing clearing mechanisms, Maurer said. Trade-finance services include guarantees from an importer’s bank that a buyer will pay the seller on time, as well as short-term loans.
“This would be very important for Geneva trade finance,” said Maurer, whose association represents banks in Switzerland with majority shareholders domiciled abroad. Members include subsidiaries of Barclays Plc, HSBC Holdings Plc and Commerzbank AG.
People’s Bank of China Governor Zhou Xiaochuan is opening up the nation’s capital markets as he seeks a greater role for the yuan in global trade and investment. Shanghai inaugurated a pilot free-trade zone last month that will allow trials of yuan convertibility under the capital account and permit overseas companies to sell debt denominated in the local currency.
In June, China’s central bank signed a three-year swap agreement for 200 billion yuan ($32.6 billion) with the Bank of England to foster trading in London. Two weeks ago, the U.K. joined Hong Kong and Taiwan in being allowed by China to take part in a program allowing offshore yuan to be invested in Chinese securities.
Switzerland is basing its push for the yuan business on the country’s ties with China, one of the nation’s biggest trading partners. About 4 percent of Swiss exports went to China in 2012, making the country the sixth most important destination for foreign trade behind countries including Germany, the U.S., and Italy, according to the Swiss customs office.
Almost 80 percent of offshore yuan trading is currently settled in Hong Kong. By 2015, a third of China’s cross-border trade will be settled in yuan, making the currency one of the three most used in global trading along with the dollar and euro, according to a HSBC Holdings Plc.
Yuan transactions account for less than 1 percent of global trades, compared with about 84 percent combined for the U.S. dollar, euro, pound and yen, according to the Belgium-based Society for Worldwide Interbank Financial Telecommunication, or Swift, which provides messaging services to banks.