Switzerland Will Join Race to Be Trading Hub for China’s Yuan

Switzerland plans to bid to become an offshore yuan trading center in Europe, competing with Frankfurt and London to corner trade in the Chinese currency.

“It is in Swiss interest to have a renminbi hub in the center of Europe,” Economy Minister Johann Schneider-Ammann said in Beijing yesterday after signing a free trade agreement with Chinese Commerce Minister Gao Hucheng. While no official talks have taken place, Schneider-Ammann said he hopes the idea will become “more serious” in the coming weeks or months.

Leaders of the world’s second-largest economy are promoting greater use of the yuan in international trade and finance to decrease the country’s dependence on the U.S. dollar and move toward making the currency convertible for investment purposes. Zurich is vying with London, Paris and Frankfurt for the top spot in Europe, while Canadian banks are considering a plan to make Toronto the first North American trading hub.

“The Swiss side, the Swiss financial system, in particular the Swiss National Bank, we are interested in getting the chance to negotiate with the Chinese about a renminbi hub in the center of Europe, in Switzerland,” Schneider-Ammann said, using another term for the yuan.

London, the center of the world’s $4 trillion-a-day market for foreign-exchange trading, claims to have the edge in Europe after the Bank of England signed a three-year currency swap line with the People’s Bank of China last month, becoming the first among European central banks to establish such a facility with the Asian nation.

Swap Agreement

An organization representing Frankfurt’s financial industry predicted last week the European Central Bank will get a swap deal that would allow it to exchange euros for as much as 800 billion yuan ($130 billion) -- four times the size of the agreement obtained by the Bank of England.

To have a trading hub, a country’s central bank must have an agreement with the PBOC to swap its currency for yuan. Such an accord gives a central bank access to yuan funds to backstop companies doing business with Chinese partners.

The Swiss Bankers Association “understands” the nation’s central bank is looking at a swap agreement, Heinrich Siegmann from the association said at a briefing in Zurich on July 5.

Some of Canada’s largest banks, insurance companies and pension funds met with government representatives and the Bank of Canada in Toronto on June 21 to discuss establishing a yuan trading hub, according to industry group Toronto Financial Services Alliance.

Sole Gainer

The Chinese currency completed its best week since May, rising 0.08 percent to 6.1326 per dollar, ahead of this week’s annual Strategic and Economic Dialogue between Chinese and U.S. government officials in Washington. The yuan has advanced 1.6 percent this year, the sole gainer among Asian currencies, data compiled by Bloomberg show.

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.

By 2015, a third of China’s cross-border business will be settled in yuan, making the currency the third most traded, after the dollar and euro, according to HSBC Holdings Plc.

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